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Central Banks remain the key drivers of foreign exchange markets, with policymakers in both North America and Europe continuing their gradual turn towards a more hawkish standpoint. However, investors now have to decide who is in the strongest position to amend current accomodative policies.
Has the Fed tinkered too much, too soon? Will the Bank of England finally react to rising inflation? Is the Eurozone really out of deflation?
The most important event on the calendar this week is the Federal Reserve Chair Janet Yellen’s appearance on Capitol Hill. Following on from last week’s release of the minutes from the FOMC’s June meeting, the head of the Fed ventures to Washington as part of her semi-annual address to Congress on the current position of the central bank.
Her first testimony comes before the US House Panel (Wednesday; 3pm) while the second is an appearance before the Senate Banking Panel (Thursday; 3pm). If Yellen sticks to her recent hawkish turn, reiterating that another rate hike is possible before the year end and setting out a potential time frame for the trimming of the Fed’s bloated balance sheet, the US dollar could extend its rally from 9-month lows. If, however, Yellen confirms that weaker than expected data would cause the central bank to divert from its current course of tightening when grilled by panel members, this may dampen the greenback.
Almost as soon as Yellen leaves Washington, Fed policymakers will have the latest US inflation figures (Friday; 1:30pm) to contemplate. Last week’s stellar Non-Farm Payrolls figures were somewhat overshadowed by sluggish Wage growth, therefore placing an even greater onus on Inflation numbers. The Fed’s preferred Core measure has been trending lower since a peak of 2.3% in January, falling to a 2-year low in April.
Sterling will also have to react to a speech from policymakers, as BoE Chief Economist Andy Haldane – the instigator of the mid-June rally after indicating he was prepared to vote for a rate hike – and Deputy Governor of Monetary Policy Ben Broadbent both provide speeches on Tuesday (11am & 12pm respectively). Should the former replicate his hawkish speech from three weeks ago this would likely support the pound, however anything that vaguely resembles a dialling back could have a bearish impact.
Both speeches come a day before the release of May UK Unemployment and Average Weekly Earnings (Wednesday; 9:30am). With Inflation rapidly approaching 3%, and macroeconomic data waning in recent weeks, policymakers will be hoping that Wage growth rebounds from a 14-month low to close some of the gap to inflation and subsequently stem the decline in Real Wages.
Finally, the Euro remains subdued, although the currency is holding gains around recent highs against both Sterling and the US dollar. While the currency’s recent strength stems from a hawkish address by ECB President Draghi, stating that the Eurozone had become reflationary rather than deflationary, this week’s calendar is light on both data and speeches. This may leave the currency without major direction and continue its recent range-bound trading. However, should a significant reaction arise from Fed Chair Yellen’s Congressional testimony, the EUR/USD could post fresh 14-month highs.
Other data and events of note this week include Eurozone Industrial Production (Wednesday; 10am), the Bank of England’s Credit Conditions and Bank Liabilities Surveys (Thrsday; 9:30am), US PPI (Thursday, 1:30pm) and US Industrial and Manufacturing Figures (Friday; 2:15pm), and the University of Michigan Sentiment (Friday; 3pm).
Key data this week (Sign up here to receive our daily live macro-calendar)
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UK Economic Announcements
00:01 BRC LfL Sales
Intl Economic Announcements
11:00 NFIB Small Business Optimism (US)
15:00 Wholesale Inventories, JOLTS Job Openings (US)
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UK Economic Announcements
09:30 Unemployment, Average Weekly Earnings
Intl Economic Announcements
05:30 Tertiary Industry Index (JP)
10:00 Industrial Production (EZ)
12:00 MBA Mortgage Applications (US)
13:30 Fed Chair Yellen Testimony to Congress Text Released (US)
15:00 Fed Chair Yellen at US House Panel (US)
15:30 Oil Inventories (US)
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UK Economic Announcements
00:01 RICS House Prices
09:30 BoE Credit Conditions & Bank Liabilities Surveys
Intl Economic Announcements
03:00 Imports/Exports (CN)
07:00 CPI (DE)
13:30 PPI (US)
13:30 Weekly Jobless Claims (US)
15:00 Fed Chair Yellen at Senate Banking Panel (US)
Intl Economic Announcements
05:30 Industrial Production (JP)
10:00 Trade Balance (EZ)
13:30 CPI, Average Weekly Earnings, Retail Sales (US)
14:15 Industrial & Manufacturing Production (US)
15:00 U. of Michigan Sentiment (US)
15:00 Business Inventories (US)
18:00 Baker Hughes Rig Count (US)
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