The majority of forex market-moving economic indicators will be contained to a 48 hour period this week, as the US dollar will face the release of Advance Retail Sales and CPI, while the British pound will encounter UK CPI, jobless claims, and the BOE Quarterly Inflation Report. Not to be forgotten, the New Zealand dollar could experience additional downward pressure as first quarter retail sales are likely to disappoint.
· UK Consumer Price Index – May 13
On Tuesday at 4:30 EDT, UK CPI figures are anticipated to show stronger inflation pressures, with the index expected to rise 0.5 percent in April from the month prior and 2.6 percent from a year earlier. If anything, there are significant upside risks for this particular release, as Monday’s issue of UK PPI data is forecasted show the index to accelerating at the fastest pace since 1991. The Bank of England cut rates as recently as April 10 by a quarter point to 5.00 percent, but opted to leave rates steady during their most recent meeting on May 8. While there were likely Monetary Policy Committee members that voted for at least a 25bp cut in light of the major downside risks to economic growth that tight credit market conditions and the UK housing slump presents, inflation remains of major concern. As a result, very strong UK CPI figures could lead the British pound to rally upon release, especially ahead of Wednesday’s BOE Quarterly Inflation Report, but if the news proves to be much softer than forecasted, the currency could fall rapidly as the markets are already anticipated a rate cut by the Bank of England in June.
· US Advance Retail Sales – May 13
Advance Retail Sales are expected to fall back 0.2 percent after showing a surprising 0.2 percent gain during the month prior, but given the current economic scenario, this figure could prove to be even more disappointing when announced at 8:30 EDT. Indeed, consumer confidence is rapidly deteriorating and energy prices continue to skyrocket. There is little doubt that retailers are contending with difficult circumstances as they are forced to offer the biggest discounts possible in order to draw customers, which will negatively impact profit margins. However, there is potential for the Advance Retail Sales index to actually show a positive increase as the result of prices, namely, sales at fuel stations. Indeed, this index is not adjusted for inflation and average gas prices rose above $3.50/gallon during the month and have only continued to rise.
· UK Jobless Claims Change, BOE Quarterly Inflation Report – May 14
The release of UK jobless claims at 4:30 EDT tends to be a decent market-mover for the British pound, and with declines in the number of people claiming unemployment benefits forecasted to stall, the news could be bearish for the currency. However, the comments within Bank of England’s Quarterly Inflation Report at 5:30 EDT may override any shift in sentiment from the jobless claims report, as it will serve as a more timely view of the Monetary Policy Committee’s bias. When the BOE last released this report in February, they indicated a reduction in the bank’s growth forecast, but the underlying attitude suggested that future rate cuts may come at a more leisurely rate than the markets had been anticipating, which allowed the GBP/USD pair to rally immediately. Will we see a repeat this time around? Possibly. While we do still expect the BOE to cut rates by 25bps in June, a pronounced focus on the upside inflation risks and indications that CPI will probably breach the 3.0 percent level could lead to surge in the British pound across the majors. On the other hand, if the BOE tones down their hawkish stance, the currency could fall sharply.
· US Consumer Price Index – May 14
The US headline consumer price index for the month of April is expected to rise 0.3 percent upon release at 8:30 EDT, while the annual rate of growth is forecasted to slow to 3.9 percent. A bulk of the increase will likely be the result of food and energy price gains, especially as oil traded from $100/bbl to $120/bbl over the course of the month. Meanwhile, core CPI is anticipated to show a mild 0.2 percent rise for the month, which would leave the annualized reading at 2.4 percent. However, if any of these figures surprise to the upside or downside, the markets will respond accordingly and the moves could be dramatic. On the other hand, if the CPI reports are released in line with expectations, Treasuries, the US dollar, and US stock markets may simply trade quietly.
· NZ Retail Sales – May 14
On Wednesday evening at 18:45 EDT, New Zealand retail sales will be released and the data could send the New Zealand dollar plunging. There are no consensus forecasts, but given the recent indications that the country’s economy slowed sharply during the first quarter, we expect retail sales excluding inflation to fall negatively or rise only very marginally. One of our main signals: labor market conditions deteriorated significantly during that period, as the unemployment rate jumped more than expected to 3.6 percent from 3.4 percent. It is finally becoming clear that the Reserve Bank of New Zealand’s record high rates of 8.25 percent are having the intended impact by leading consumption to drop, business activity to cool, and inflation pressures to ease.
See the DailyFX Calendar for a full list and timetable of upcoming event risks.