The Week Ahead: Central Bankers and Inflation to Dictate Near-Term Forex Trends

The US Dollar

US housing sector data kickstarts the week for the US dollar. New home sales and building permits will draw investor interest on Monday. An unexpected slump in permits and sales could spook investors. Economists consider the housing sector a litmus test of the US economy.

On Tuesday, consumer confidence numbers for February will need consideration. A pickup in consumer confidence could signal a positive outlook for consumer spending and inflation. Other stats include durable goods orders and house price data. However, the CB Consumer Confidence Index will have more impact.

Q4 GDP numbers will be in focus on Wednesday. Revisions to second-estimate figures could influence views on the economy. However, the Q4 numbers are unlikely to influence the Fed rate path.

On Thursday, Core PCE Price Index and personal income/spending figures will influence bets on an H1 2024 Fed rate cut. Persistent inflation and rising income/spending trends may delay a rate cut until H2 2024.

Other stats include jobless claims and the Chicago PMI. However, these will likely play second fiddle to the inflation and personal income/spending numbers.

ISM Manufacturing and Michigan Consumer Sentiment numbers wrap up an important week for the US dollar. Investors must also consider inflation-linked sub-components.

Beyond the numbers, FOMC member speeches warrant investor attention. FOMC members Raphael Bostic (Thurs/Fri), John Williams (Thurs), Loretta Mester (Thurs), and Mary Daly (Fri) are on the calendar to speak.

Reaction to recent inflation numbers and views on the timeline for a Fed rate cut would move the dial.

The EUR

On Tuesday, German consumer confidence numbers for March will put the EUR/USD in focus. Recent consumer confidence reports highlighted a grim outlook for spending. An unexpected fall in confidence could signal a prolonged economic recession.

The French and German economies will be under the spotlight on Thursday. Q4 GDP numbers from France and German retail sales and unemployment figures will need consideration. However, French and German preliminary inflation figures for February will impact the EUR/USD more. Hotter-than-expected inflation could reduce bets on an April ECB rate cut.

On Friday, manufacturing PMI numbers and preliminary Eurozone inflation figures will be in focus. The PMI for Italy and revisions to the Eurozone Manufacturing PMI would influence buyer demand for the EUR/USD. However, the CPI Report will be the focal point for the markets and the ECB.

Beyond the numbers, investors must monitor ECB member commentary. ECB President Christine Lagarde (Mon) and Executive Board member Elizabeth McCaul (Wed) are on the calendar to speak.

The Pound

On Thursday, UK house prices will put the Pound in focus. Inflation and interest rates have adversely affected consumer sentiment and the UK economy. An unexpected fall in UK house prices could affect consumer confidence and spending plans.

Finalized manufacturing PMI numbers for February could also influence buyer appetite for the Pound on Friday.

However, Bank of England chatter will likely have more impact. BoE Governor Andrew Bailey (Tues) and Chief Economist Huw Pill (Mon/Fri) are on the calendar to speak. Views on inflation and interest rate cuts would move the dial. Monetary Policy Committee members Sarah Breeden (Mon) and Sir Dave Ramsden (Tues) will also deliver speeches.

The Loonie

On Thursday, Q4 GDP numbers from Canada will impact buyer demand for the Loonie. Below-expectation GDP numbers may increase bets on a Bank of Canada rate cut in H1 2024.

Other stats include wholesale sales and current account data. However, the GDP Report will likely have more impact.

From elsewhere, private sector PMI numbers from China (Fri) will likely influence the outlook for demand and commodity currency trends.

The Australian Dollar

On Wednesday, construction work done will garner investor interest. A deteriorating housing sector environment could impact consumer confidence, consumption, and the  Aussie dollar.

However, Australian retail sales figures for January will warrant investor attention. The RBA left an interest rate hike on the table in the February meeting. Increased consumer spending may drive demand-driven inflation and affect sentiment toward the RBA rate path.

Other stats include private capital expenditure numbers. However, the retail sales report will likely be the focal point for the RBA.

From elsewhere, private sector PMIs from China and stimulus chatter could also move the dial.

The Kiwi Dollar

On Wednesday, the RBNZ will put the Kiwi dollar in the spotlight. Economists expect the RBNZ to leave the cash rate at 5.50%. Unless there is a surprise policy move, the Rate Statement and Press Conference need consideration.

Private sector PMI numbers from China will also warrant investor attention on Friday. A pickup in manufacturing sector activity would be a boon for riskier assets and commodity currencies.

The Japanese Yen

On Tuesday, national inflation numbers for January will put the Japanese Yen in focus. Softer-than-expected inflation figures could affect bets on a Bank of Japan pivot from negative rates.

However, However, on Thursday, Bank of Japan inflation and industrial production numbers will also need consideration. A pickup in the annual inflation rate would support market bets on an April pivot from negative rates.

However, industrial production numbers could raise more red flags about the economy. An unexpected slump in production may influence the Bank of Japan and plans to exit negative rates.

With inflation in focus, Bank of Japan commentary also needs consideration. Forward guidance on the timeline to pivot from negative rates could move the dial.

Out of China

On Friday, private sector PMI numbers for February warrant investor attention. Recent economic data from China has sent mixed signals. However, a pickup in private sector activity could fuel demand for riskier assets.

The all-important Caixin Manufacturing PMI will likely have more impact.

Investors must also consider stimulus chatter from Beijing.