What's ahead this week?
This is a big week for the USD, with The Federal Reserve meeting on Wednesday evening, US GDP data on Thursday and 4 of the FAANGS reporting earnings (making up 25% of the S&P value).
The USD has been slowly losing ground, after 2months of out-performance – in fact, the USD Index has fallen 3% since the beginning of the month, pulling EUR/USD up to 1.2100 and GBP/USD to 1.3925
Although the Fed meeting is not expected to communicate a change of stance in policy, Chairman Powell can start setting a hawkish tone for the summer. Consensus is for the US economy to grow at 7% annualised this year, and at some point, the Fed has to start removing support.
“The latest Bloomberg survey has revealed that about 45% of US economists now expect the Fed to begin tapering QE in Q4. However, the Fed is then expected to wait until 2023 to begin raising rates with the median forecasts set at 0.75% by the end of 2023 and 1.25% by the end of 2024.”
Until this is communicated, economists expect the USD to continue its steady decline.
EURO: German data was weaker than expected this morning – importantly, it was the ‘expectations’ element that was most disappointing, indicating that global supply bottlenecks and the ‘3rd wave’ is hurting the Eurozone recovery. ECB President Lagarde is speaking on Wednesday, and all eyes will be on her comments regarding economic recovery expectations.
Eurozone (Q1) GDP on Friday will be the first indicator the market sees for the quarter – if this is weak, the market expects further €€ weakness.
GBP: UK data last week as strong across the board – Retail Sales, inflation, employment and PMI all hitting target or better. With the economy opening up, ING bank suggested that GBP/$ could breech 1.4000 as a short-term target. This week is quiet for UK data.
CAD: Strengthened last week as the central bank indicated a pull-back in the economic stimulus package. It was the first advanced economy to do so, and CAD was bolstered, and the rally was maintained with higher commodity prices at the end of the week. This Wednesday’s Retail Sales data will be closely watched – GBP/CAD at 1.7300 & EUR/CAD at 1.5050.