ast week the targets shifted, as Mexico was spared and instead Germany was accused by Trump of taking advantage of a “grossly undervalued” Euro. The greenback was also hurt by increasing doubts over the incoming Trump administration’s ability and willingness to deliver the fiscal stimulus that it has promised. These concerns have more or less overshadowed the fairly tame FOMC meeting, as well as the payrolls report on Friday.

Next week is short on economic and policy news. Therefore, we expect currency markets to be driven by political news. Focus as always will be on Trump’s twitter feed, but the French Presidential election will demand an increasing share of attention, particularly if the National Front candidate Le Pen shows any sign of closing its sizable deficit in second-round electoral polls.

Major currencies in detail

GBP

The Bank of England brought the recent Sterling rally to a screeching halt at its meeting last Thursday. Rates were left on hold, as universally expected. However, the monetary policy committee lowered its estimate of the equilibrium unemployment rate by a sizable 0.5%, down to 4.5%. This suggests that the Bank of England’s tolerance for tight markets and inflationary pressures could be higher than we thought. While we still expect the next move in rates to be up, the first hike is clearly quite a way in the future.

As in the US, next week brings the focus squarely back on political news. The bill for Article 50 is expected to be approved at the House of Commons on Wednesday.

EUR

Inflation in Germany rose and unemployment fell in January. This data adds to the increasingly compelling case that monetary easing in the Eurozone is having the desired impact, nudging growth and employment higher and slowly raising inflation back towards the ECB’s target. However, we do not expect the Euro to benefit significantly until the ECB council takes note of this improvement, which it has signally failed to do so far.

As elsewhere, politics comes into focus next week in the Eurozone. The main uncertainty to be cleared appears to be which candidate will dispute Le Pen the second round of the Presidential elections. The centrist Macron seems to be the likely favourite after scandals rocked the Fillon campaign, however, we think that the market may be underestimating the chances of the Socialist Party’s candidate, Hamon.

USD

Markets almost completely ignored the two key events of the last week. The Federal Reserve came out with a slightly hawkish statement that left the door open for either a hike or no move at the March meeting. As for the January jobs report, the headline number was better than expected with 227k jobs created versus the 180k consensus, although on the negative side wage growth dropped from a revised 2.8% to 2.5%. Unemployment rose 0.1%, however, this was on the back of a 0.2% tick up in labor force participation rate – overall a positive message on labour force slack. At the margins this report suggests that inflationary pressures in the US are not building quite at the pace we expected.

Next week, several Fed speakers will share the spotlight with the always unpredictable statements and actions from the Trump Administration. As always, we will be looking for any hints that shed light on the nature, size and timing of the promised fiscal stimulus and infrastructure packages.