RedFX Update: The week ahead – some big decisions from the headline acts!
Last week saw EUR/USD and GBP/USD both pull back after registering the biggest weekly moves in over 1 year.
The week ahead sees 13 policy meetings – we will have our eyes firmly fixed on the big 3 central banks announcing interest rate decisions (Europe, USA and Japan) and next week it is the turn of the UK to announce its interest rate. Each will be accompanied by a statement - each will have very different nuances regarding the future rate paths. It looks like another volatile one!
Main Events this week:
Tuesday: German IFO Business expectations data
Wednesday: AUD Inflation / US Fed Interest rate decision
Thursday: EUR Interest rate decision / US GDP
Friday: AUD Retail Sales / Japan Interest rate decision / German Inflation / US CPE & Income data / US Consumer Confidence
GBP/USD has pulled back from the recent 1.3100 high, resting at 1.2850. GBP/EUR has remained stable but drifting to the bottom of recent ranges at 1.1550. This morning’s PMI data printed lower than expected (the 12th straight month of UK manufacturing sector contraction), pulling GBP lower as the economic situation for both manufacturing and services in the UK continues to be under pressure.
Decent Retail Sales data last week might fuel yet more inflation in the UK, prompting some economists to say that next week (3rd August meeting) will see a ‘big’ rise in interest rates, although most suggest a 0.25% hike. This is despite softer inflation numbers released in June (the Bank of England has repeated that underlying inflation pressures remain).
After recent signs of weakening inflation, the Federal Reserve Statement this week will be closely watched.
Although unlikely to announce the end of the hiking cycle, the Fed is likely to take a more moderate stance and become ‘data-dependent’. Economists are split - some are expecting one more 0.25% hike this year – peaking around 5% - 5.25%. However, despite weakening inflation the labour market remains incredibly strong and some economists think that the Fed can afford to keep raising rates and cool the US economy.
Euro strength ebbed through last week, but MUFG Bank has today said that the new trading range looks set to be 1.1000 – 1.1500 (currently trading at 1.1100).
What can we expect from Thursday’s announcement? Economists expect 0.25% increase and a statement which does not fully commit to another 0.25% hike later this year … instead saying that the ECB will closely watch the data and inflation numbers. This should support the single currency in the medium-term.
