GBP/USD has posted losses in the Tuesday session. In North American trade, the pair is trading at 1.2130. On the release front, US PPI dipped to 0.3%, above the estimate of 0.1%. Later in the day, UK releases the CB Leading Index. Traders should be prepared for volatility, with a host of key indicators on both sides of the pond. The UK will release three employment indicators – Average Earnings Index, Claimant Count Change and the unemployment rate. The US will publish CPI and retail sales reports. As well, the Federal Reserve is widely expected to raise the benchmark rate to 0.75 percent.
The political machinations over Brexit have continued this week. On Monday, the House of Lords backed down and voted through the Brexit bill without making any changes. This move means the bill will be passed into law, allowing Theresa May’s government to trigger Article 50 and formally declare Britain’s intent to leave the European Union. There had been speculation that May might invoke Article 50 on Tuesday, but the government said it will not do so until later in March. Under Article 50, the negotiations are slated to take up to two years. Relations between Britain and the EU have nosedived since the stunning Brexit vote in June. The timing of invoking Article 50 comes at a particularly delicate time for Europe, as the Netherlands holds elections on Wednesday and France goes to the polls in April.
Strong US employment numbers in February have cemented a rate hike by the Federal Reserve on Wednesday. Nonfarm payrolls sparkled in February, as the indicator jumped to 235 thousand, easily beating the estimate of 196 thousand. Wage growth climbed 2.6% compared to February 2016, while the participation rate edged up to 63.0%, up from 62.9%. These numbers make it a virtual certainty that the Fed will raise rates by a quarter-point on Wednesday. Although a rate hike has been priced in by the markets at 93%, there have been disappointments in the past, so a rate move will likely give the dollar a boost against its major rivals. The solid job numbers also give President Trump a much-needed boost. Trump is under pressure to present an economic agenda, but the markets won’t mind giving him some additional breathing room, with the economy performing so well.
