FX Week Ahead Overview:
- The European Central Bank is likely to strike a dovish tone this week as the sanctions levied by the EU and the US against Russia has stoked a liquidity crunch.
- US inflation rates are anticipated to set new cycle highs, but that won’t do much to change the Fed’s calculus with respect to a rate hike this month.
- The Canadian jobs report is expected to be quite strong, but the Canadian Dollar may not benefit significantly anyway.
For the full week ahead, please visit the DailyFX Economic Calendar.
03/09 WEDNESDAY | 01:30 & 03/10 THURSDAY | 08:00 GMT | CNY INFLATION RATE (CPI) (FEB); CNY NEW YUAN LOANS (FEB)
As China grapples with another wave of COVID-19 infections – inching ever closer towards abandoning their zero-COVID strategy – evidence has accumulated that the economy has lost some vigor at the start of 2022. The headline February Chinese inflation rate (CPI) is due in at +0.9% y/y, the same as in January. But Chinese officials appear to be trying to breathe life into the economy – perhaps as a counterweight to lingering property sector concerns – as evidenced by forecasts for new yuan loans figures to remain near their highest levels ever. In totality, the two data releases shouldn’t knock-back the Chinese Yuan, which has been incredibly resilient thus far this year.
03/10 THURSDAY | 12:45, 13:30 GMT | EUR European Central Bank Rate Decision
Russia’s invasion of Ukraine is provoking liquidity strains across the global financial sector, with European banks at the center of the storm. There is a non-zero chance that the EU and US sanctions on the Central Bank of Russia provokes a liquidity crunch for European banks that persists for the foreseeable future.In turn, this may be providing the excuse ECB officials need to justify keep their asset purchase program in place through 3Q’22, and interest rates lower for longer. We’ll hear from the ECB this week at their March rate decision, which should shine light on their perspective, alongside the release of their updated Staff Economic Projections (SEP).
03/10 THURSDAY | 13:30 GMT | USD Inflation Rate (CPI) (FEB)
US inflation pressures are poised to set new multi-decade highs this week as COVID-19 omicron variants impacts are still being felt through the global supply chain. But the worst may still be yet to come, as the Russian invasion of Ukraine has sparked a surge in agricultural, energy, and base metal commodities. According to a Bloomberg News survey, the headline February US inflation rate (CPI) is due in at +0.8% m/m from +0.5% m/m and at +7.9% y/y from +7.5% y/y, with the core inflation rate (ex-energy and food) due in at +0.5% m/m from +0.6% m/m and at +6.4% y/y from +6%. The data will likely help keep US rate hike expectations firm, which are solidly in favor of a 25-bps rate hike by the Federal Reserve this month.
03/11 FRIDAY | 07:00 GMT | GBP Gross Domestic Product (JAN)
The UK economy appears to have gained steam at the start of 2022, thanks in part to the statistical base effect resulting from the slowdown at the start of 2021 (when COVID-19 infections raged). For January, the year-over-year reading is due in at +9.3% from +6%, even though the three-month growth rate is set to subside from +1% to +0.8%. Nevertheless, these are strong enough readings that will likely keep near-term BOE rate hike odds elevated.
03/11 FRIDAY | 13:30 GMT | CAD Employment Change & Unemployment Rate (FEB)
Despite nationwide protests over COVID-19 mandates, the Canadian economy appears to have benefited from declining COVID-19 infection rates and a rise in energy prices last month. According to a Bloomberg News survey, the Canadian economy added+160K jobs in February after losing-200.1K jobs in January. The Canadian unemployment rate is expected to drop sharply from 6.5% to 6.2%. Unfortunately for the Canadian Dollar, gains by energy prices are not necessarily boosting appetite for the currency as broader ‘risk-off’ moves envelop the market thanks to the Russian invasion of Ukraine; more rangebound price action is anticipated.
--- Written by Christopher Vecchio, CFA, Senior Strategist
