Last week there were some interesting movements in FX markets post economic data, especially after interest rate announcements which all came in unchanged as expected.
On Wednesday Canada’s interest rate remained at 5%; the immediate reaction was for the Canadian dollar to be sold off. Then on Thursday, the Norwegian Central Bank kept rates on hold at 4.5% only for the Norwegian Krone to strengthen. The ECB followed, keeping rates on hold and the Euro weakened.
Friday was a mean reverting day with the Canadian dollar, Euro and Norwegian Krone all finishing the week more or less where they started it. US PCE on Friday afternoon (the Fed’s preferred measure of inflation) got the markets excited again with Core PCE printing 2.9% (Y.o.Y) for December, which will play into Fed Chair Powell’s easing narrative when he speaks to the press this Wednesday evening following the Fed’s interest rate announcement.
This week, the main event is a US interest rate decision and Fed conference. Other important announcements include the Bank of England’s interest rate decision, German and Eurozone flash inflation figures for January, Australian 4th quarter (Y.oY) inflation numbers, German and Eurozone flash growth numbers, as well as US Non-Farm Payrolls, Consumer Confidence, ISM Manufacturing PMI and Michigan Consumer Sentiment.
On Tuesday, both German and Eurozone GDP is expected to be negative for the 4th quarter of 2023. US Consumer confidence is expected to rise in January. Economists are looking for a number of 115 vs December’s 110.7.
We start Wednesday with Australian 4th quarter inflation figures which are likely to fall to 4.3% (Y.o.Y). German flash inflation figures (out in the early afternoon on Wednesday) are likely to post 3.3% (Y.o.Y) for January. We now have a complete picture of G7 inflation (Y.o.Y) up until the month of December 2023. Can we trust the numbers?
Inflation will certainly be a topic discussed by Fed Chair Powell in his address post the US Fed’s interest rate decision on Wednesday evening (expected unchanged at 5.5%). Let’s think back to last month and talk of “top of the cycle and potential easing.” PCE inflation will be comforting for Powell and his efforts to find a way to cut borrowing costs. You may also remember the Yen strengthened quite significantly on hopes of a BOJ pivot and Fed easing towards the end of last year.
On Thursday the ECB publishes flash Core inflation figures (Y.oY) for Jan expected at 3.2%. The Bank of England is likely to keep UK rates unchanged at 5.25%. US ISM Manufacturing PMI is forecast to remain broadly the same as last month at 47.3 vs 47.4 (Dec).
Friday, and US Payrolls are expected to post 173K for Jan with the unemployment rate creeping up to 3.8%. Watch out for average hourly earnings which have so far risen 4.1% for the year. Michigan Consumer Sentiment (final) for Jan is likely to be very positive relative to December (78.8 vs 69.7).
A lot of very timely and relevant data to enjoy!
Good Luck and Good trading!
Ben Robson is Head of Institutional E-FX at Swiss Finance Corporation. He is also the Amazon Best Selling Author of Currency Kings – How Billion traders Made their Fortune Trading Forex. McGraw Hill 2017
