The US dollar had a volatile week, making a big negative turnaround on the inflation report but moving back up as the week drew to a close. What’s next? The FOMC minutes and several Fed speaker will have the chance to move markets. Here are the highlights for the upcoming week.
US inflation came out slightly higher than expected, with 1.8% y/y on the core and 2.1% on headline inflation. The initial reaction was dollar positive, but the greenback fell back down as stocks turned positive and the narrative changed, partly due to the disappointing retail sales report. If the US economy is growing at a slower pace, there is no urge for a rate hike. The greenback made a comeback on Friday on profit taking and also upbeat figures from the housing sector and consumer confidence. What’s next?
UK jobs report: Wednesday, 9:30. The Bank of England has shifted to a hawkish stance, noting that rates may rise at a quicker pace than had been anticipated. Inflation has also remained stubbornly high at 3% y/y. But what about wages? The average hourly earnings component of the jobs report remains the primary detail. It is expected to remain at 2.5% y/y in December. The unemployment rate carries expectations for staying unchanged at 4.3% in December while the Claimant Count Change carries expectations for a small rise of 2.3K in January after 8.6K beforehand. A big jump in the latter figure may steal the show from wages if they remain unchanged.
US Existing Home Sales: Wednesday, 15:00. Most transactions in the housing market are of second-hand homes. The rise in activity indicates an increase in economic activity in general. A small rise from 5.57 million annualized to 5.63 million annualized is predicted for January.
FOMC Meeting Minutes: Wednesday, 19:00. The Federal Reserve shifted its stance to a somewhat more hawkish one on its January 31st meeting, the last rate decision presided by Janet Yellen. The meeting minutes are edited until the very last moment, so the tone may reflect a message that the Fed would like to convey, even if the minutes document an event that happened three weeks ago, before the stock market crash and recovery. We will learn how much the Fed really believes that inflation is set to rise and perhaps we can learn about the path of rate hikes.
UK GDP (second release): Thursday, 9:30. The British economy grew at a faster pace in Q4 2017: 0.5% q/q. However, the UK still lags behind its major peers. A confirmation of this read is likely now. Any deviation may rock the pound.
ECB Meeting Minutes: Thursday, 12:30. The European Central Bank left its policy unchanged in the January meeting. They also refrained from providing any guidance on the next steps in the QE program. The minutes from that meeting will likely convey the same old message: good growth, but low inflation. A focus on growth could send the euro higher while a focus on inflation would send it lower. Any talk about changing the communication, hinting about the end of QE, would help push the euro higher.
Canadian inflation report: Friday, 13:30. The Bank of Canada raised the interest rate in January but seems to hesitate about the next move. A rise in inflation may change their minds. Back in December, headline CPI dropped by 0.4% m/m but measures of core inflation ticked higher, with the Common CPI standing at 1.6%, Median CPI at 1.9%, and the Trimmed CPI at 1.8%.
Bill Dudley talks: Friday, 15:15. The President of the New York Fed will leave his post later this year, but he is still influential, especially as no Vice Chair has been nominated yet. His comments about inflation and interest rates may certainly move the market. Dudley has expressed optimism of late.
Loretta Mester talks: Friday, 18:30. The President of the Cleveland Fed is known as a hawk and her opinions may be of higher interest as she has been mentioned as a candidate for Vice Chair at the Fed. In recent appearances, Mester foresaw inflation rising at a quicker pace. Other Fed speakers are lined up for speeches, but thse two are the most important ones and they speak towards the end of the week, giving their words higher importance.
*All times are GMT
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