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Sterling set for next big move; the week ahead
- PM may postpone Brexit vote? 
- US CPI to confirm US struggles? 
- EU Summit to close of busy week

GBP

PM may postpone Brexit vote?
This morning the pound falls on speculation over whether UK Prime Minister Theresa May postpones the Brexit vote scheduled for tomorrow or gambles on proceeding with the vote. Sterling speculators seem to believe that under either scenario the pound will most likely suffer before any potential bounce back. To postpone the Brexit decision which is currently expected to take place tomorrow evening would give Ms May the potential to go back to the negotiating table later this week at an EU summit. However, this move could show signs of her admitting defeat leading to her stance weakening further.

GBP/USD this morning hovers just above the $1.27 handle, a level which has offered support so far. Mid-August earlier this year was the first time the pair touched the $1.27, which became the bottom of the trading range while $1.3150-$1.3250 became the top end. Trading at these levels could pose a major threat to the next potential move for Sterling. A break lower than $1.27 will push GBP/USD back to levels not seen since Q3 2017 and could confirm Reuters forecasted fall back below $1.25. GBP/EUR trades close to 1% lower from Friday’s high of €1.1239, flirting dangerously close to the €1.11 mark. This pair remains within the tight 5 cent trading range it has been in for most of 2018. However, with the pair trading close to the lower end, continued Sterling selling could see new lows be created.

This week besides the political turmoil, UK economic data will take centre stage. Estimate UK GDP for October will kick proceedings off this morning at 09:30am. Expectation is to see the number rise to 1.6% from 1.5% previously. Tomorrow UK unemployment and average earnings will also be released though no change forecast. 

USD

US CPI to confirm US struggles?
US inflation data set to be released on Wednesday could be another layer of confirmation for investors that the US economy is not as high flying as was previously expected. The number for November, released at 1:30pm, is expected to come in at 2.2% down from the previous 2.5% y/y. This is the next high-profile economic release following the disappointing jobs number on Friday. The US created 155K jobs in November when the forecasted number was 200k. Average earnings also eased slightly to 0.2% from 0.3%.

The recent change in tone in the Federal Reserves (Fed) stance on policy may also concern investors. From multiple interest rate hikes next year, the US Central Bank could hold back from doing any indicating that they feel the US market is close to normalisation. The forecasts for the Fed to hike interest rates by 25 basis-points this month fell slightly, though a majority still expect it to take place. The expectation currently sits at 73% whilst it was 84% at the beginning of the month (source: CME).

EUR/USD trades close to month highs peaking to mid $1.14 this morning. Dollar selling has helped major pairs claw back losses over since last Friday. The weakening could be a repeat of last December's moves which saw investors betting on other major currencies appreciating resulting in the aggressive rallies seen at the beginning of 2018.

EUR

EU Summit to close of busy week
The European Union Summit will round off an eventful week which starts on Thursday and concludes Friday. The summit could prove pivotal should tomorrow's Brexit vote be postponed. Though in the last outing EU leaders indicated that there was nothing more they could offer in terms of amendments to the current negotiations, optimists will hope for further changes which could help PM May win over parliament. However, another angle for the UK, to contend is the EU’s top court ruled that the UK could unilaterally reverse its decision to leave the bloc, without the consent of other member states (source: Reuters).

On Thursday the European Central Bank (ECB) will also hold an interest rate decision followed by a press conference from the ECB President Mario Draghi. Another Central Bank which could change tone on policy, especially with the very public issues going on in France and Italy. This could possibly delay any chance of an interest rate hike next year and extend the euros .




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