Forex Weekly Outlook Dec. 14-18 – Brexit, FOMC In Focus

10 and one 10 us dollar bill

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There was positive news last week as COVID-19 vaccines are being rolled out, but political crises such as Brexit and US fiscal stimulus continue to preoccupy the market. The upcoming week has inflation reports and central bank decisions in the US and Canada.

In the UK, the monthly GDP report continues to slow, and fell to 0.4% in October, its lowest level in six months. The Brexit negotiations are in full gear, but the sides have not been able to thrash out a deal, and the pound took it on the chin this week as a result.

Eurozone GDP rebounded 12.5% in Q3, just shy of the forecast of 12.6%. At its final policy meeting of the year, the ECB maintained its main interest rate at 0.00%, but implemented further easing. The bank increased its pandemic recovery fund by EUR500 billion, to a total of EUR1.85 trillion. German CPI fell by 0.8%, its fourth decline in five months.

The BoC delivered a message of “more of the same” at its monthly policy meeting. The bank kept rates at 0.25% and made no change to QE. Bank members hinted that rates would remain in ultra-low territory until the economy picked up. This stance means that we could see these rate levels for the next two to three years.

In the US, headline and core inflation both rose slightly, from 0.0% to 0.2%. PPI was also weak, with the headlined and core releases coming in at a negligible 0.1%.

Unemployment claims surged to 853 thousand last week, up from 712 thousand. This points to weakness in the labor market, as the economy continues to struggle. The week wrapped up on a positive note, as UoM Consumer Sentiment improved to 81.4 in December, up from 77.0 beforehand.

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