Inflation to take centre stage

At the end of the trading week, Michel Barnier appeared to take the upper hand in Brexit negotiations as he confirmed that there are substantial disagreements in regards to the transition period and if the disagreements continue, quite simply there won’t be a transition.The pound lost considerable ground against all major currencies and in particular the euro late Friday.

This week it will be Boris Johnson that takes the spotlight as he will give a speech on Wednesday in a bid to unite ‘remainers’ and ‘leavers’. Past history tells me this event could put pressure on the pound if Johnson goes off topic.

This week inflation numbers globally will take centre stage. To start the week UK inflation numbers are set to be released Tuesday morning. The quarterly inflation report last week suggested that inflation numbers should fall back towards the Bank of England’s 2% target. If we see a slight fall which is expected, I believe the pound will gain momentum against the euro as it paves the way for an interest rate hike for the Bank of England.

Wednesday Germain inflation is released at 8am. Germany is the powerhouse of Europe and German economic data releases have a major impact on euro exchange rates. The consensus is for German inflation to remain at 1.4%, if this materalises I expect this event to have minimal influence on exchange rates.

Later that day, US inflation is released at 1.30pm. US inflation fell last month which caused a sell off of US dollars to buy Euros. I expect US inflation to remain under pressure which is a problem for the US as they have announced they plan to hike interest rates at least twice this year. I expect the euro to strengthen off the back of the news.

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