The key driver for me in assessing FX markets at the moment is several Central Banks’ rhetorics in almost willing inflation to go down and creating narratives to support this, balanced against big caveats about how uncertain markets are, and an unwavering resoluteness at making informed decisions following the data in pursuing interest rate policy to ensure inflation reaches targets.
In plain English I can paraphrase it like this; “We’d like inflation to go down, but it hasn’t, so all those interest rate cuts we implied for this year may take longer to materialize as we are duty bound to fight inflation with higher interest rates.”
Last week was no exception. Swiss headline inflation printed higher at 1.7% (Y.o.Y Dec) vs 1.4% (Y.o.Y Nov), US headline inflation was also higher at 3.4% (Y.oY Dec) vs 3.1% for November, while US Core inflation remained elevated at 3.9%. Peripheral Eurozone economies, Norway and the Czech Republic posted annual CPI for December at 5.5% and 6.9% respectively.
This week we have year on year (December) inflation numbers from Germany, The Eurozone, Canada, the UK and Japan (remember that 45.7% of all currency traded is EURUSD, GBPUSD and USDJPY). We also have Australian employment figures and ECB minutes from its latest policy meeting as well as US Retail sales and the Michigan Consumer Sentiment report.
Germany and Canada announce headline inflation figures on Tuesday. There will be no surprises if Germany posts 3.7% as we have already had preliminary numbers that show this. For Canada the forecast is 3.3%. On Wednesday, the UK is expected to print 3.8% with Core at 4.9%. Eurozone Core inflation is expected at 3.4%. US retail sales for December are likely to be higher at 0.4% (M.o.M) vs 0.3% for November.
Thursday starts with Australian employment numbers with unemployment expected to remain at 3.9%. Thursday’s ECB minutes (if anything like the ECB Bulletin of last week) may make reference to higher wage growth that is contributing to domestic inflation. Japanese inflation figures are released at 11.30pm UK time with the Core rate expected at 2.3% (Y.o.Y Dec) Headline inflation last month read 2.8%.
Michigan Preliminary Consumer Sentiment for January is expected to be broadly the same as last month with analysts’ forecasts of 69.6.
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
