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G7 Spats Shrugged Off As Markets Turn Attention To Central Bank Announcements.

By Alex Edwards

It was a fairly lackluster end to the week last week. GBP/USD was steady for most of the day on Friday, trading just above the 1.34 figure for a lot of it. Without much in the way of major economic data, markets were more concerned for what the G7 meeting might bring. The meeting itself was civil, but events since have been anything but as the US Government and key allies continue their war of words on trade. In fact some of it has been verging on getting personal, with Trump most recently tweeting that Canadian PM Trudeau “acts hurt when called out”.

With this, risk sentiment took a hit early on this morning, and commodity currencies gapped lower when markets opened. Since then, the greenback has weakened and GBP/USD is pushing higher in London and so it seems the G7 spat is being shrugged off ahead of a particularly important and data heavy week this week.

First up at 9:30 this morning we have UK Manufacturing Production, followed by UK average earnings and employment data at the same time tomorrow, US CPI (inflation) tomorrow afternoon, UK CPI on Wednesday morning and UK and US Retail Sales on Thursday. Not to mention the ECB meeting on Thursday, at which point we expect to get more details on a plan to taper QE, the US FOMC meeting on Wednesday, at which the Fed are expected to raise interest rates, and the US/North Korea meeting; possibly laying the groundwork for ending a nuclear stand-off between the old foes. It all makes for a potentially volatile next few days.

As mentioned above, the G7 meeting grabbed the headlines over the weekend. Risk aversion was the name of the game in early Asia but it seems to have abated now and the USD has fallen back, most markedly versus the euro and pound.

Markets now turn their attention to a plethora of key economic releases this week. Arguably, the main event for investors and traders will be the FOMC meeting on Wednesday evening with markets having priced in an 85% chance of a rate hike.

The market’s other focus will be on the Fed’s projection on the future path of interest rates. A forecast of four rate hikes this year would most likely already be priced in, but if the Fed suggests faster rate hikes in 2019 than previously anticipated, that could destabilise the market.

EUR/USD is pushing higher this morning fueled by a growing sense that the ECB will signal an end or at least announce that it will begin to taper its QE program on Thursday. A flurry of comments from key ECB officials last week have been the catalyst. EUR/USD has re-bounded through the 1.18 level and opens in London at 1.1810.

As far as the euro is concerned, the main event will be the ECB meeting on Thursday but we are also due German ZEW (economic sentiment) on Tuesday and European inflation data on Friday.

It was a public holiday in Australia today so trading conditions were a little thin in AUD/USD overnight. The pair blipped as investors sold risk post the G7 meeting and war of words, but it’s since recovered vs. a weakening greenback in London.

The aussie dollar, like most other commodity currencies, will likely be affected by a host of external economic data and events this week. Although the local calendar for the week isn’t as busy as last week, there’s still a bit, including NAB Business Confidence on Tuesday and employment data on Thursday.

The Canadian dollar was one of the biggest movers in early trade this morning as Trump and the US government directed its anger towards Canadian PM Trudeau. USD/CAD gapped from 1.2920 to 1.3005, but has since recovered to open this morning at 1.2965.

The tweets, rhetoric and headlines on US trade tariffs will likely continue to impact this currency pair for a while yet, but may become less influential as the week goes on as Trump turns his attention to his meeting with Kim Jong-un and as a series of key economic data and announcements fall due.

The kiwi has traded much in the footsteps of the aussie dollar in the last 12 hours or so. Again, with the Australian market closed, trading has been fairly subdued overnight. The data docket is looking a bit light this week too for the NZD, with only the Business NZ Manufacturing Index due for release on Thursday. That’s not to say it will be a quiet next few days for the currency, with a whole host of external market influences due.