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Forex - Weekly Outlook: December 18 - 22

Published 2017-12-17, 07:27 a/m
Updated 2017-12-17, 07:36 a/m
© Reuters.  Forex - Weekly Outlook: December 18 - 22

Investing.com - The dollar was higher against a basket of the other major currencies on Friday, amid growing investor optimism surrounding U.S. tax reform, following reports that Republicans secured enough votes for the bill passage.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 93.96 late Friday, off an earlier low of 93.28.

Representative Kevin Brady, chairman of the tax-writing House Ways and Means Committee, told reporters that Republicans on the House-Senate negotiating committee working on the revamped bill had signed the finished product. It comes after two Republicans sought changes to the proposed legislation.

The House was expected to vote on the bill on Tuesday. Some investors expect that the tax overhaul may boost U.S. growth, leading to more interest rate hikes and a higher dollar.

The dollar was up against the yen, with USD/JPY gaining 0.2% to 112.60 in late trade.

Despite Friday's gains, the greenback tallied a small weekly loss after the Federal Reserve raised interest rates for a third time this year, as widely expected, and indicated that it would stay on a similar path next year, disappointing some who had speculated the U.S. central bank could raise its interest rate projection for next year to four rate hikes.

The central bank also said it expected inflation to remain below its target for another year, tempering expectations for an accelerated pace of rate hikes.

Meanwhile, the euro ended lower against the dollar, with EUR/USD down 0.25% at 1.1749 by late trade Friday.

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The European Central Bank kept its key rates on hold on Thursday and stuck to its pledge to provide stimulus for as long as needed, predicting inflation would remain below target into 2020.

Elsewhere, the pound fell against both the dollar and the euro as Brexit negotiations remained on the forefront after British Prime Minister Theresa May secured agreement from the European Union to move on from discussing the divorce terms to mapping out a plan for the future trade relationship.

On Thursday, the Bank of England voted unanimously to keep rates at 0.5%, as expected, as policymakers grapple with uncertainty over Brexit, low wage growth and weak productivity, which are all weighing on the economy.

In the week ahead, the final reading of third-quarter U.S. growth will be the main focus for global financial markets, as investors begin to wind down trading activity before the Christmas and New Year holidays.

In the U.K., market players will be looking ahead to a final reading on British growth data for further indications on the continued effect that the Brexit decision is having on the economy.

Investors will also keep an eye out on survey data on German business confidence to gauge sentiment in the euro zone's largest economy.

Elsewhere, traders will pay close attention to a monetary policy decision due in Japan amid speculation the Bank of Japan will lag well behind major global central banks in dialing back its massive stimulus program.

Ahead of the coming week, Investing.com has compiled a list of these and other significant events likely to affect the markets.

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Monday, December 18

Japan is to release data on the trade balance.

The euro zone is to release revised inflation data.

Canada is to report on foreign securities purchases.

Tuesday, December 19

New Zealand is to produce data on private sector business confidence.

The Reserve Bank of Australia is to publish the minutes of its latest monetary policy meeting, giving investors insight into how officials view the economy and their policy options.

In the euro zone, the Ifo Institute is to report on German business climate.

The U.S. is to release data on building permits, housing starts and the current account.

Wednesday, December 20

New Zealand is to release data on the trade balance as well as the current account.

German Bundesbank President Jens Weidmann is to speak at an event in Milan.

Bank of England Governor Mark Carney is due to speak about the November Financial Stability Report at a Treasury Select Committee Hearing, in London.

Canada is to publish a report on wholesales.

Later on, the U.S. is to publish a report on existing home sales.

Thursday, December 21

New Zealand is to publish data on third quarter growth.

The Bank of Japan is to announce its benchmark interest rate and publish a rate statement which outlines economic conditions and the factors affecting the monetary policy decision. The announcement is to be followed by a press conference.

The UK is to release data on public sector borrowing.

Canada is to report on inflation and retail sales.

The U.S. is to release final figures on third quarter economic growth, as well as weekly jobless claims and a survey on manufacturing conditions in the Philadelphia area.

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Friday, December 22

The U.K. is to report on the current account and publish revised data on third quarter growth.

Canada is to publish data on economic growth.

The U.S. is to round up the week with data on personal income and spending, which includes the personal consumption expenditures inflation data, the Fed's preferred metric for inflation, will also be on the agenda.

Reports on durable goods orders, new home sales and revised Michigan consumer sentiment figures will also be on the agenda.

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