Last week, the Bank of Canada cut interest rates by a quarter of one percent to 4.5%, US GDP impressed at 2.8% q.o.q and US Headline PCE receded to 2.5% y.o.y for June.
The stars seem to be aligning for either Ex- President Trump or incumbent Vice President Harris- who raised multi-millions of dollars after her endorsement as the Democratic candidate for the November elections- to inherit an economy that could be one of stability and growth. Fed Chair Powell and his colleagues are primed to keep this narrative going as they are most likely to either cut US interest rates in one of their next meetings; if not this Wednesday, then most probably in September. The Bank of Japan and Bank of England are also meeting this week and we have inflation metrics from Australia as well as US Non-Farm Payrolls and ADP employment numbers.
On Tuesday we receive a Euro-Area GDP release as well as German inflation and US Consumer Confidence numbers. Euro Area growth is expected to have risen in the 2nd quarter to 0.6% y.o.y German inflation for July is forecast to stay stable at 2.2% y.o.y and US Consumer Confidence is likely to have fallen to 99.9 for July.
Wednesday promises to be a busy day. First up, Australian Inflation for the second quarter. Analysts are suggesting a 3.8% y.o.y print, which will not be too pleasing for the Reserve Bank of Australia when it reviews the local economy before making its interest rate decision on 6th August. The Bank of Japan, is widely expected to keep interest rates on hold at 0-0.1% Some analysts are looking for a hike of 0.1%. The Japanese Yen has been strengthening recently on hopes of a US cut as well as MOF intervention.
German employment figures (consensus 16,000 new jobs, unemployment rate 6.0%) precede Euro Area Core inflation which may fall by 0.1% to 2.8% in July. The US ADP employment change is expected to post 166,000 new jobs. It’s 50:50 for a US rate cut. Fed Chair Powell is pondering on the question of easing too soon and stoking inflation or not instigating an easing cycle and stunting growth. As we saw last week, GDP surprised to the up-side and so the Fed will probably stay “unchanged” at 5.25-5.5% this time around.
With UK elections out of the way, a UK interest rate cut is on the cards on Thursday, the caveat is that services inflation remains stubbornly high. Also, The Bank of England may be Fed watching. A quarter of a percent cut from 5.25% to 5% will be welcomed by many in the UK. US ISM Manufacturing PMI is released in the afternoon and is forecast to improve to 48.8 in July from June’s 48.5. Keep an eye out for ISM Manufacturing employment which was 49.3 last time out
We start Friday off with Swiss inflation figures which are expected to have fallen in July. Friday’s big event is US Non-Farm Payrolls. Analysts’ forecasts are for 185,000 new jobs created, an unemployment rate of 4.1% and average hourly earnings steady at 0.3% m.o.m for July.
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
