This
week we potentially have an example of how political events can impact
our FX markets far more than the scheduled economic calendar events we
tend to set our watches by. The rise of what's being termed "populism"
(right wing ideology by any other name) looks set to dominate the Dutch
election result this week. Whilst the UK's Brexit issue will take
another turn, as prime minister May can actually (and finally), invoke
what's being euphemistically labelled as "Article 50", in order to
formally begin the divorce proceeding from the European Union.
These two unfolding political events will overshadow other European news
releases during the week. Whilst over in the USA, according to those
who specifically bet on such outcomes, the FOMC meeting appears to be a
'slam-dunk' decision for a rate rise.
For FX traders who specialise, or concentrate mainly on trading the
major currency peers including: sterling, dollar and the euro, this week
could prove to be particularly volatile. Similarly, we may experience
volatile movements in USA, European and the U.K. equity markets due to
the political issues and as a consequence precious metals' values could
come under scrutiny.
So market makers, market movers, analysts and investors expect the
Federal Open Market Committee (FOMC) to announce that they're raising
rates by 0.25% when they meet on Wednesday.
This coming after Chair Janet Yellen gave enough forward guidance
recently, by stating that a rate hike “would likely be appropriate” at
the next meeting.
It would appear that all the Fed's economic ducks are in a row, in order
to give the green light to an increase; apparently employment in the
USA is nearly at full levels, wage rises are running at over 2%, CPI
inflation is creeping up and what's termed "soft data"; generally
classed as sentiment indicators, all look bullish. These are metrics
that overshadow: deteriorating balance of trade and balance of payments
data, rising imports and shrinking exports. In short, the Fed have
enough ammunition to justify raising rates, based on their belief that
the USA economy is in such a good place, that it can withstand such a
small micro rise of 0.25%.
Focus
will then quickly turn to Yellen’s post-meeting press conference, for
further clues as to the time frame for any further tightening of
monetary policy, if hawkish sentiment from the FOMC is broadcast.
The Netherlands begins Europe's 2017 government elections on Wednesday.
Populist Geert Wilders and his Party for Freedom are ahead in the polls
and could win the most seats in the 150 seat Dutch parliament, however,
the party cannot be expected to form a government with such seat
numbers. This election is being observed for any clues that Europe is
being subject to and swayed by right wing movements (with immigration as
the key debating issue), as recently evidenced by the UK's Brexit
referendum decision and the rise in popularity of Marine Le Pen's French
nationalist FN party.
The UK's Bank of England is due to reveal its decision regarding
monetary policy on Thursday,
the analysts polled on the subject expect the UK's base interest rates
to be kept at 0.25% and the asset purchase programme not extended beyond
its current £435bn ceiling.
The more dominant UK issue this week, which could dramatically effect
the value of sterling versus its major peers, concerns the government
potentially triggering Article 50 this week. Royal Assent is not
expected before March 13th, theoretically May's government could trigger
anytime this week or, with a sense of irony and bitterness, wait for
the 60th European Union anniversary due at the end of the month.
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