FX Week Ahead - Top 5 Events: Eurozone Economic Sentiment; UK GDP; US Inflation Rate; BOC Rate Decision; Australia Jobs Report
FX Week Ahead Overview:
- The Bank of England’s concerns about UK growth will soon be realized, as the upcoming UK GDP report is expected to show no growth for the three months through May.
- The June US inflation rate (CPI) report will give the ammunition the Federal Reserve needs to justify another 75-bps rate hike later this month.
- The Bank of Canada will likely raise rates by 75-bps this week, the largest rate increase since August 1998.
For the full week ahead, please visit the DailyFX Economic Calendar.
07/12 TUESDAY | 09:00 GMT | EUR Eurozone ZEW Economic Sentiment Index (JUL)
Ongoing war in Eastern Europe, continued elevation in energy prices, and slumping growth conditions have seen the Euro crash to its lowest level versus the US Dollar in two decades. And now that markets are beginning to question the viability of the European Central Bank’s efforts to prevent fragmentation in bond markets, Eurozone economic sentiment is likely to slump to its lowest levels of 2022. A test of parity - a 1.0000 exchange rate - in EUR/USD rates increasingly appears to be a question of when rather than if.
07/13 WEDNESDAY | 06:00 GMT | GBP Gross Domestic Product (MAY)
The Bank of England has been issuing caution about the UK’s growth trajectory for several months now, and those fears are being close to realized as incoming UK GDP data appears to be disappointing. According to a Bloomberg News survey, the three-month growth rate is set to fall to 0%, while year-over-year reading is expected to decline from +3.4% in April to +2.7% in May. The BOE’s balancing act between fighting multi-decade highs in inflation and a slowing UK economy has the central bank less committed to interest rate hikes than its major counterparts, leaving the British Pound at a meaningful disadvantage.
07/13 WEDNESDAY | 12:30 GMT | USD Inflation Rate (CPI) (JUN)
The US Dollar's push to fresh yearly highs comes ahead of the widely anticipated June US CPI report, which should provide more justification for the Federal Reserve to raise rates by 75-bps later this month. According to a Bloomberg News survey, headline US inflation is due in at +8.8% y/y in June from +8.6% y/y in May, but the core reading is expected to ease from +6% y/y to +5.7% y/y. Fed funds futures suggest that there are 175-bps worth of rate hikes due between now and the end of 2022 (75-bps in July; 50-bps in September; 25-bps in November; 25-bps in December), which is helping prop up the US Dollar.
07/13 WEDNESDAY | 14:00 GMT | CAD Bank of Canada Rate Decision
The Bank of Canada is expected to raise rates by 75-bps this week, bringing their main rate from 1.50% to 2.25%. This would be the largest rate hike since August 1998, mirroring the Federal Reserve’s 75-bps rate hike last month, their largest since 1994. For the Canadian Dollar, an aggressive rate hike may not be enough to insulate the currency: a 50-bps rate hike is priced-in for September, but nothing else thereafter. The BOC will need to offer new forward guidance that suggests additional tightening is possible into the end of 2022 if the Canadian Dollar is going to benefit in a material fashion.
07/14 THURSDAY | 01:30 GMT | AUD Employment Change & Unemployment Rate (JUN)
The Australian Dollar remains under pressure as base metal prices sag alongside energy markets. Concerns around China’s zero-COVID strategy aren’t helping either. But the Aussie’s weakness nary reflects issues in the domestic economy, which, all things considered, is still quite strong. The June Australia jobs report is expected to show further progress for the labor market, with forecasters anticipating jobs gains of +30K from +60.6K in May, which should lower the unemployment rate from 3.9% to 3.8%. If Australian Dollar strength emerges as a result of the jobs report, AUD/JPY rates are the place to look.
--- Written by Christopher Vecchio, CFA, Senior Strategist
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