Economic data releases will of course be watched closely during the forthcoming week, but there is a strong feeling that currency-market moves may be dominated by ‘events’ rather than the latest economic numbers
Tensions in the Middle East and North Africa will continue to be watched closely as political protests remain a serious issue. Will there be a domino effect with unrest spreading further and could there be a substantial flow of assets out of emerging markets which could have an important dollar impact?
Within Europe, markets will be watching the banking sector very closely following a surge in emergency lending from the ECB at the end of last week. Having ruled out a technical error, markets will be fearful of renewed liquidity and solvency issues.
Sovereign debt fears will also never be far from the surface as Portugal has been unable to get benchmark bond yields back below 7.0%. At this level, the risks of external support being required are extremely high. This could be the week when Portugal formally applies for help. A bailout for Portugal has effectively been discounted, but it would also put a fresh spotlight on Spain which could be very uncomfortable for the Euro.
The race to succeed ECB President Trichet is also likely to heat up during the week. It is certainly possible that contenders will look to boost their credentials by making tough anti-inflationary comments.
As well as Western Europe, Asian economies will also remain an important focus as China grapples with serious inflationary pressures.
The Bank of England will again be an important focus with the release of the February MPC minutes. Sentance has given a strong hint that three members voted for an interest rate increase at the meeting and the vote breakdown will be watched very closely.
The commentary within the minutes will also be extremely important as it will give further clues as to whether the bank is likely to make a move in March. Any hints on the potential number of rate increases during 2011 will also be important for Sterling sentiment.
Elsewhere in the UK, the latest borrowing requirement will be released on Tuesday and the government may get a welcome piece of good news in the form of a surplus for the month, but this will reflect a seasonal component of strong corporate tax receipts rather than a sudden improvement in the fiscal position. Sterling will continue to face a stern challenge from economic slowdown fears.
There are several relatively high profile US economic releases during the week, but it is doubtful whether they will move the interest rate debate forward significantly. Consumer confidence figures will be released on Tuesday following by existing home sales on Wednesday with jobless claims and durable goods orders on Thursday. A revised fourth-quarter GDP figure will also be released on Friday.
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