RedFX Update: A busy data week ahead

The week is off to a slow start despite rising global tensions, as the US marks Martin Luther King Day on Monday. US stock markets continue to climb, along with oil and gold, and the USD continues to ‘tread water but with a slightly weaker tilt. 

Japanese markets are also soaring as the BoJ looks set to maintain a very loose monetary policy for longer than markets anticipated – this gives European markets a morning boost.

USD: Expectations remain that the Federal Reserve will cut rates six times this year for a total of 150 basis points (1.5%), despite pushback from various Fed members, and this continues to weigh on the USD, with EUR/USD pushing up to 1.1000 levels again. However, there remains an underlying bid for USD due to the troubles in the Red Sea and surrounding area. In this environment, it is going to be difficult for the US dollar to make a concerted break, one way or another.

GBP: Still strong, despite weak GDP. GBP/USD is at 1.2750 and has only been higher once, for a few days in July23. The reason is that economists believe US will cut rates faster and sooner than the UK. Inflation in the UK is stickier than Europe and the US and there are signs that the UK economy is flatlining at best.

 This week sees a lot of data out of the UK – employment on Tuesday and inflation numbers on Wednesday (the Consumer Price Index is expected to print 3.8% and the closely watched core measure to fall to 4.9% from 5.1%). If this data is weaker than expected, GBP will fall as markets price in interest rate cuts sooner than currently expected.

EURO: The ECB has a tricky task ahead, with the Eurozone economy broadly stagnant and inflation appears to be falling but unconvincingly. Along with some bleak sentiment data and Germany’s domestic problems, the ECB needs to time these interest rate cuts very carefully. This Wednesday we have Inflation data and a speech from ECB President Lagarde to focus upon. EUR/USD just under 1.1000 is a factor of a weak USD rather than a bullish EURO!

·         Monday: US Holiday (Martin Luther King Day) / NZD Business Confidence

·         Tuesday: UK Employment / German Inflation / German Economic Sentiment data / Canada Inflation

·         Wednesday: China GDP, Industrial Production & Retail Sales / UK Inflation data / EUR Inflation data / US Retail Sales / EUR President Lagarde speech

·         Thursday: AUD Unemployment data

·         Friday: UK Retail Sales / US Consumer Confidence data