FOMC Rate Decision, U.K. Budget Report Hold Major Implications

The FOMC meeting is the marquee event risk on the calendar but could take a back seat to other indicators as the central bank is expected to remain on hold. The emergency budget report from the U.K. coalition government may steal the headlines and could dictate future pound price action. German IFO, Canadian CPI and U.S. Durable Goods are other potentially market moving releases on the economic docket.

• U.K. Budget Report – June 22 – 16:30 GMT
The U.K. coalition government will reveal their emergency budget which will include forecasted borrowing costs for coming years. The level of the austerity measure proposed could set the tone for the Pound over the medium term. Severe measures could dim the outlook for domestic growth and become a weighing factor. Conversely, a well received course of action could ease credit rating concerns and generate sterling support. Markets will also be looking to see if an increase in the VAT is on the table which could also impact growth predictions.

• German IFO (JUN) – June 22 – 08:00 GMT
The German IFO Survey, one of the country’s key business sentiment gauges, is forecasted to have slipped to 101.2 from 101.5 as the debt crisis continues to weigh on the outlook for growth. Indeed, the expectations component of predicted to have fallen for the third straight month to 102.7 from 103.7 in May. A reading over a 10 indicates an overall positive outlook but if the prospect across the board reduced government spending breeds pessimism then a negative outlook could have formed. A reading below 100 could weigh on the Euro and lead to a reversal of its recent gains. An upside surprise doesn’t hold the same market moving potential but could provide a level of support.

• Canadian Consumer Price Index (MAY) – June 22 – 11:00 GMT
Inflation in Canada is forecasted to have remained flat in May as falling energy cost are expected to have offset broader price growth. Indeed, economists are looking for core prices to have risen 03% during the month which could push the annualized rate from 1.8% to test the central bank’s target of 2.0%. Policy makers raise their target rate by 25 bps as domestic growth has put upward pressure on prices and further acceleration could inspire additional tightening. A rise in yield expectations could be supportive for the Canadian dollar especially when other countries are starting to see inflation slow.

• FOMC Rate Decision – June 23 --18:15 GMT
The FOMC will meet this week to determine future monetary policy with expectations that they will keep the benchmark rate at 0.25%. Indeed, Fed fund futures are giving a zero percent chance of tightening with overnight index swaps only pricing in 34 bps of rate increase over the next twelve month-the lowest since May 25th, 2009. Weak job growth and falling consumer prices have signaled that the recovery still remains fragile which could make it prohibitive for the central bank to raise rates in 2010. However, the level of U.S. debt begs for inflation as the government will be hard pressed to pay back its loans in real terms, which has former Fed chairman Alan Greenspan predicting the need for higher borrowing costs. Markets will be looking to see if the committee removes the “extended period” language form the post release remarks which would signal that a change in policy could come before the end of the year.

• U.S. Durable Goods (MAY) -- June 24 – 12:30 GMT
The manufacturing sector has driven the U.S. recovery which has markets looking for signs of its sustainability. A 1.2% increase in industrial production in May was a positive sign but a decline in demand for durable gods could signal upcoming weakness. Forecasts are for the headline reading to have dropped by 1.2% following a 2.8% gain the month prior. However, the demand stripped of the volatile transportation component is forecasted to have risen by 1.1% after a 1.1% decline in April. The mixed reading could leave question marks and limit its impact on price action. Nevertheless, the indicator is an important gauge for domestic and global growth and should be monitored fro insight into longer-term trends.

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

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