- The FOMC meeting minutes tend to be market moving, but this instance is unique insofar as it was the last meeting under Fed Chair Janet Yellen; the voting composition will be very different moving forward.
- Attention will be on BOE policymakers in the coming days as the odds of a May rate hike have moved above 60%, per overnight index swaps.
- Retail trader positioning remains mixed as measures of volatility remain elevated after the early-February surge.
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02/21 Wednesday | 14:15 GMT | GBP BOE’s Carney, Broadbent, Haldane, and Tenreyro Speak
Traders should turn their attention to the group of Bank of England policymakers speaking this week given recent inflation and labor market data. Despite weakness on headline GDP (due out later in the week at +1.5% annualized), price pressures remain stubbornly high and real disposable income remains under pressure. Accordingly, amid strong signaling from BOE policymakers in recent weeks, the British Pound has started the year as the second best performing currency versus the US Dollar as rates markets have dragged forward the expected timing of the next 25-bps rate hike from August to May.
02/21 Wednesday | 19:00 GMT | USD January FOMC Meeting Minutes
The Federal Reserve’s January policy meeting was a placeholder for the US Dollar in more ways than one. Just a month removed from the December rate hike, policymakers were staying the course. But the minutes themselves won’t leave a lasting impact this time around for a different reason: it was the last meeting under the purview of former Fed Chair Janet Yellen. Now that Jerome Powell sits atop the FOMC, and there is a new composition of relatively more hawkish voters, the path that the FOMC will take going forward will likely be somewhat different. Market participants will put little stock in the words of an outgoing Fed Chair and FOMC panel.
02/22 Thursday | 09:30 GMT | GBP Gross Domestic Product (1Q P)
The second look at Q1’18 UK GDP is expected to show the UK economy grew by +1.5% annualized, the same rate reported at the initial release. The middling headline figure may be evident of the overhanging uncertainty the Brexit negotiations have wrought. A combination of stunted wage growth and rising inflation has crimped consumer expenditure, the prime growth driver in the UK. In effect, there is a state of mini-stagflation going on right now: save the labor market (which is doing quite well, thus the UK is not in a state of ‘true’ stagflation), inflation continues to run near +3% and headline GDP is below +2%. It seems doubtful that the release will be a catalyst for fresh Sterling gains unless a beat is in order.
Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD
02/22 Thursday | 23:30 GMT | JPY National Consumer Price Index (JAN)
Japanese inflation figures are expected to show further improvement, increasing to +1.3% y/y in January from +1.0% y/y in December. While the headline is due to remain well-below the Bank of Japan’s preferred target near +2%, they do represent the fastest rate of price pressures since April 2015 – when Shinzo Abe government enacted the (unpopular) sales tax reform. Nevertheless, should inflation tick higher, expect market participants to speculate over an early termination to the BOJ’s easing policies. The Japanese Yen, which has been the best performing major currency this year, should remain well-supported.
02/23 Friday | 13:30 GMT | CAD Consumer Price Index (JAN)
Canadian inflation is expected to dropped further below the central bank’s medium-term target of +2.0% in January, dampening the likelihood of another rate hike in the first half of this year (in early-January, overnight index swaps were pricing in an 81% chance of another 25-bps hike; now, odds have dropped to 71%). Despite recent improvements in the labor market, figures from Statistics Canada showed that overall wage growth is at its lowest since 1990. Weakness in USD/CAD over the past year is proving to be a headwind for inflation.
--- Written by Christopher Vecchio, CFA, Senior Currency Strategist
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