Drivers Changing on a Weekly Basis

Back to the data (with a sprinkling of Politics!)

Every week the foreign exchange market seems to change its focus. Two weeks ago, we were anticipating the release of several policy defining pieces of economic data from the major economies. Last week monetary policy and interest rate decisions shaped trader’s opinions.

Now we are back to data with a little politics thrown in to spice things up a little.

The French election has, as yet lacked the “sparkle” of previous ones. Sure, we have had a little financial scandal, even a little sex thrown in. It is more usual to have a candidate skulk away in disgrace or a former lover “kiss and tell”. Maybe those are still to come, but for now we must be satisfied with a candidate who, if elected will push for Frexit.

It is difficult to completely discern how the French view the EU. They appear to be happy to follow the German lead. Their farmers who not averse to blocking a few motorways or marching on Paris, figuratively since they usually “march” in tractors, remain quite militant.

Said farmers have historically done quite well from the Common Agricultural Policy but their brothers in militancy, the working class, have been faring far worse recently.

This has led to the desertion of the Socialist Government and its policies. Huge swathes of the industrial north east of the country have swung from near-communism to right wing parties such as the national front. How they will vote on May 7 is crucial to the outcome of the vote. The first ballot on April 24th will determine the run-off on May 7th. There will be no socialist candidate able to garner sufficient votes to challenge the three primary candidates. The run-off will between le Pen and either Fillon or Macron.

That is a few weeks away, so for now it is data that will give traders some clues as to the direction of currencies.

This week puts sterling firmly in the limelight following last week’s surprising single dissenting voice at the MPC.

Producer Prices, Retail Sales and Inflation numbers are all due for release tomorrow.

Producer prices are unlikely to have cooled much from last month's monumental 20.5% rise year on year since the fall in sterling continues to work its way through the manufacturing sector.

Retail sales will show whether the various headwinds that have and still face the economy have had much effect on the consumer.

Finally, “Big Daddy”! Did Kristin Forbes’ crystal ball tell her something about the inflation data that her eight colleagues didn’t see?

That remains to be seen but tomorrow is possibly going to be a defining day for the rest of and could possibly provide real evidence of how monetary policy is going to shift in the U.K.

In the Eurozone, this week's Governing Council meeting of the ECB is a non-monetary policy meeting. I often wonder what they find to talk about? Maybe they just confirm the results of their Fantasy Football League, exchange recipes or arrange a good night out!

This week’s meeting with take place following the latest Bundesbank Monthly report which is released later today. The German Central Bank casts a large shadow over the Eurozone and if they show concern over inflation, then it is probable the ECB will as well.

Germany makes no secret of its desire for higher rates and a stronger currency. The ECB, since it is charged with policy for the whole region sees things slightly differently.

Higher inflation and a possibly overheating economy is the price Germany must pay for its domination of the EU as a whole and the Eurozone in particular!