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Commentary by Central Bank Policymakers Could Overshadow Data Next Week

Commentary by Central Bank Policymakers Could Overshadow Data Next Week

2011-03-25 21:06:00
Christopher Vecchio, CFA, Sr. Currency Strategist
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The flow of data next week is particularly heavy, as it marks the end of March and the beginning of April, meaning growth figures will be released from major economies, as well as labor market data from the U.S. However, following the European Union Summit, the markets will be looking towards commentary by central bank policymakers around the globe to figure out how to wind down stimulus, withdraw liquidity, and raise rates. U.S. Treasuries saw their yields jump late in the North American session on Friday following commentary by Federal Reserve Governor Charles Plosser that he would support action to end the FOMC’s mandate of quantitative easing. With many FOMC policymakers scheduled to speak next across the globe, markets will be listening eagerly to try and pinpoint a time if and when the Federal Reserve will raise rates. Further hawkish commentary will assuredly boost interest rate expectations, sending the Greenback higher against other major currencies.

  • German Consumer Price Index (YoY) (MAR P): March 29 – --:-- GMT

Inflation is expected to continue its creep higher in Europe, with Germany’s consumer price index expected to have gained by 2.2 percent in March, on a year-over-year basis. Calls by European Central Bank policymakers remain high; in fact, the OIS shows a 124.2 percent chance of the European Central Bank raising interest rates by 25-bps at their meeting in a few weeks. Consumer prices have been accelerating an increasingly accelerating rate since August, and the year-over-year inflation rate has been positive every month since November 2009. A reading over 2.0 percent would mark the second consecutive month in which the index had gained at such a pace, and another jump in German consumer prices would likely be the final nail in the coffin for an ECB rate hike with purchasing power being siphoned from European consumers.

  • U.S. Consumer Confidence (MAR): March 29 – 14:00 GMT

Consumer confidence is forecasted to fall back below 70.0, after holding above said level for only one month. A reading of 65.0 would roughly equate to the reading in January, which was 64.8. The reading in February was the highest rate in three years. A turn lower in the housing market will likely be one of the leading causes of the decline in confidence, as evidenced by a record low in new housing starts this week. A poor housing market, in conjunction with rising inflationary pressures, the crisis in the Middle East and North Africa, and a deteriorating nuclear situation in Japan area also to have been factors that could have weighed on confidence. The latter two events could just be a temporary drag on confidence if the situations are resolved without too much collateral damage to human life and the environment. A steeper-than-expected drop will almost definitely weigh down the U.S. Dollar, as one would expect a deteriorating outlook for the economy to be followed by less consumption, and depressed growth figures down the road. Join a DailyFX analyst for live coverage of event!

  • Canada Gross Domestic Product (YoY) (JAN): March 31 – 12:30 GMT

Canadian gross domestic product data surprised the market in the 4Q of 2010, as exports expanded at their fastest rate since 2004 and the pace of spending by consumers quickened. However, facing steep debt issues coming into 2011, as well as a strong Canadian dollar relative to its U.S. counterpart, figures, though expected to show continued growth at a 3.1 percent clip, could miss expectations. Clearly, the Canadian people are not pleased with the direction the country is moving in, given that the House of Commons voted today to remove the current conservative government from its position, with new elections expected to be held in May. Similarly, economic conditions in the first few months of the new year were likely to have been significantly worse than they were in the preceding months, leading one to believe that the GDP figure could be slimmer than anticipated. However, considering the components of growth are well-documented before the release of the aggregate number, the price action sparked onto Loonie-crosses could be limited. Join a DailyFX analyst for live coverage of event!

  • U.S. Change in Non-farm Payrolls (FEB): April 1 – 12:30 GMT

Payroll figures beat forecasts last month, expanding by 192,000 jobs, versus the 190,000 expansion expected. Job growth in December was particularly weak, but the markets seemed to accept the higher figure in January as a result of more moderate weather conditions relative to how they were in December, and an improving overall economy. True, another round of payrolls at or above expectations will certainly support Federal Reserve Chairman Ben Bernanke’s postulation that there are “grounds for optimism” about improvements in the labor market, although it has been projected that there needs to be at least 125,000 jobs added every month for the labor market to keep up with population growth. Also featured on Friday will be the Unemployment Rate, which after falling to its lowest level since April 2009, is expected to hold at 8.9 percent. Join a DailyFX analyst for live coverage of event!

  • U.S. ISM Manufacturing (MAR): April 1 – 14:00 GMT

The ISM manufacturing gauge has risen every month since July, reaching its highest level since May 2004 when it reached 61.4 in February. The index is expected to show continued expansion in the manufacturing sector, which is indicated by a reading above 50.0. A weaker Greenback across the major currencies has certainly helped increase demand for American goods, ultimately boosting exports and keeping growth running. Another strong number will boost hawkish rhetoric within the Federal Reserve, as rate hike proponents will cite the gauge as a reason to withdraw quantitative easing in order to prevent the economy from overheating. On the contrary, if the figure slides more than expected, it could lead to a weaker U.S. Dollar, as adversaries of a rate hike will cite unstable footing the U.S. economy finds itself on, and another reason to extend quantitative easing or introduce a whole new round of liquidity injections.

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

Written by Christopher Vecchio, DailyFX Research

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