Home Forex Week ahead: More inflation data on the way as rate cut bets crumble

Week ahead: More inflation data on the way as rate cut bets crumble

by SuperiorInvest
  • CPI figures expected in the United Kingdom, Japan, Canada and New Zealand
  • China will also be in the spotlight as first quarter GDP is monitored
  • US Retail Sales to Kick Off Week as Earnings Season Begins

CPI figures to lead UK data deluge
After another interesting CPI report in the US, inflation data will remain at the forefront of next week's releases, including in the UK. But first on the UK agenda will be the February jobs report due out on Tuesday.

Employment declined in the three months through January, raising the unemployment rate to 3.9%. The UK labor market has slowed substantially over the past year amid a slight contraction in GDP. The economy appears to be recovering, but job growth could remain weak for some time yet. From the perspective of wage inflation, a cooling of the labor market can only be good news.

Average weekly earnings growth, excluding bonuses, has moderated from a high of 8.9% year-on-year last summer to 6.1% in January. A further slowdown is likely in February, a trend underlined by a Bank of England survey showing wage growth expectations have fallen to the lowest level in two years.

However, lower wage growth will not be the whole story for sterling next week, as investors will also analyze the latest CPI readings on Wednesday. UK inflation fell to 3.4% in February and another drop is expected for March to 3.1%. The core figure is also expected to decline again.

Finally, March retail sales figures will be watched on Friday for clues as to whether consumer spending is picking up or not.

Cable is currently testing the floor of the sideways range it has been trading in since December and incoming data poses a downside risk if it suggests the Bank of England is still on track to start cutting rates in August, while that the Federal Reserve's schedule has begun to shift to September.

If the UK's inflation outlook continues to improve, the pound could struggle to stay above $1.25 and traders will want to see the UK economy recover stronger or US growth lose steam to defend that level. clue.

Can Japanese CPI lift the downtrodden yen?

Inflation in Japan rose sharply in February after a year-long decline. Core CPI excluding fresh food prices and the Bank of Japan's target of 2% inflation rose to 2.8% from 2.0%. However, while there was likely a modest further rebound in headline CPI, the core figure, released on Friday, is expected to have eased to 2.6%.

However, investors are wondering whether inflation pressures in Japan may accelerate much again from now on and therefore expectations for further rate hikes remain weak, something that has been weighing heavily on the yen.

However, the Bank of Japan appears to be subtly paving the way for a second rate hike towards the end of the year and Governor Ueda has hinted as much. There are also reports that the bank will revise upwards its inflation forecasts at its next meeting on April 26. Authorities are hopeful that extraordinary wage deals in this year's spring wage negotiations and the end of energy subsidies at the end of May will keep inflation above 2% over the medium-term horizon.

But until this is reflected in the CPI data, the yen is unlikely to find much support.

A mixed outlook for China's economy

China will release GDP estimates on Tuesday as optimism over its economic recovery improves. The world's second-largest economy likely expanded 1.4% quarter-on-quarter in the three months to March, accelerating from a 1% pace in the previous quarter. However, markets could focus more on the annual rate which is expected to have slowed from 5.2% to 4.6%.

March figures on industrial production and retail sales could also leave investors unimpressed, as both are expected to have declined year-over-year compared to February.

Any disappointment in the GDP statistics could compound the woes of the Australian and New Zealand dollars, which have been swimming in choppy waters of late amid constantly changing Fed rate cut bets. For the Australian dollar, traders They will also be keeping an eye on Thursday's national employment numbers, while for the New Zealand dollar, Wednesday's CPI numbers will be crucial.

The Reserve Bank of New Zealand maintained a very neutral stance at its April policy meeting, indicating that a rate cut is still some time away. But if the CPI rises less than the expected rate of 4.1% year-on-year in the first quarter, investors could have more confidence in a cut in August.

Canadian inflation is in the crosshairs

Another country due to report CPI data next week is Canada, which will be released on Tuesday. A June rate cut is still on the cards for the Bank of Canada despite increased caution globally about inflation stickiness. Canada's headline CPI rate fell to 2.8% in February and underlying measures also fell.

A continuation of that trend in March could increase the odds of a rate cut in June, which are currently below 50%, putting further pressure on the Canadian dollar.

The dollar has already lost about 3.5% against the US dollar this year, so any new signs of a possible divergence in monetary policy between the Federal Reserve and the Bank of Canada could add to those losses.

Retail sales the only threat to dollar bulls

South of the border, the US calendar looks relatively light, with Monday's retail sales figures being the most important release.

The latest NFP and CPI reports put a dent in expectations of a summer rate cut from the Federal Reserve, so investors will be hoping for weaker data next, and they may well get it.

Retail sales are forecast to have increased 0.3% month-on-month in March, slowing from the previous rate of 0.6%. Other indicators to watch in the US are the Empire State manufacturing index, also on Monday, building permits and housing construction along with industrial production on Tuesday, followed by the Philadelphia Fed manufacturing index and existing home sales on Thursday.

While markets are still reeling from the setback on hopes of an early rate cut, the dollar is likely to remain firm. But stocks on Wall Street stand a chance of rebounding if the first-quarter earnings season gets off to a good start. Attention will focus next week on Netflix (NASDAQ:), which will announce its results on Thursday.

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