The Week Ahead: Private Sector PMIs and the Jackson Hole Symposium in Focus

The US Dollar

The US dollar faces a crucial week after a volatile two weeks.

On Wednesday, the FOMC Meeting Minutes will draw interest. Clues on the Fed’s stance regarding interest rate cuts need consideration. Views on inflation and the labor market will be pivotal for the US dollar. Concerns about the US labor market and support for multiple 2024 Fed rate cuts could impact US dollar demand.

US jobless claims and private sector PMIs will spotlight the US economy on Thursday, August 22. A larger-than-expected increase in jobless claims and a slide in the Services PMI may retrigger investor fears of a hard US economic landing.

The services sector accounts for over 70% of the US economy. A marked deterioration in service sector activity, amid increasing scrutiny of the US labor market, could spook investors.

On Friday, August 23, the US housing sector will be in focus. Economists consider the housing sector a litmus test for the US economy. Deteriorating housing sector conditions could erode consumer confidence and spending, which are important for the US economy. Private consumption contributes over 60% to GDP.

Meanwhile, the Jackson Hole Symposium will be a focal point on Thursday and Friday. The markets expect Fed Chair Powell to greenlight a September Fed rate cut while maintaining optimism for a soft US economic landing. Deviation from market expectations could move the dial.

The EUR

On Tuesday, German producer price and Eurozone inflation figures may influence EUR/USD demand. Upward trends in German producer prices could signal a pickup in headline inflation. Producers increase prices in a rising demand environment, passing costs onto consumers.

Headline inflation numbers for the Eurozone will be crucial for the EUR as investors speculate about a September ECB rate cut. Higher inflation trends could dampen the chances of a September ECB rate cut, possibly driving EUR demand.

On Thursday, private sector PMIs for Germany, France, and the Eurozone also require consideration. A pickup in service sector activity could challenge expectations of a September ECB rate cut. However, investors should view the subcomponents, especially price trends. Higher prices may reduce investor bets on a September ECB rate cut.

Beyond the numbers, the ECB monetary policy meeting minutes will also be in focus on Thursday. Views on inflation, the economy, and the rate path need consideration.

The Pound

UK private sector PMI data will put the Pound in the spotlight on Thursday. The services sector will likely influence the Bank of England rate path more, accounting for over 70% of the UK economy.

A higher-than-expected Services PMI could lower the probability of a Q4 2024 BoE rate cut. Investors should also consider price-related subcomponents. As a key contributor to headline inflation, higher input and output price trends may reduce the chances of a Q4 2024 BoE rate cut.

On Friday, Bank of England Governor Andrew Bailey could provide clues on the BoE rate path after the recent inflation, labor market, retail sales, and private sector PMIs. Views on the timing of a BoE rate cut could be crucial for the Pound.

The Loonie

It is an important week for the Loonie as investors speculate about the timing of the next Bank of Canada rate cut.

On Tuesday, inflation figures could be pivotal for the BoC. Softer-than-expected numbers may raise expectations of a September rate cut, possibly weakening Canadian dollar demand.

On Friday, retail sales also need consideration. Another decline in retail sales could cement expectations of a September rate cut. Downward trends in consumer spending may dampen demand-driven inflation, allowing for a more dovish BoC rate path.

The Australian Dollar

The RBA Meeting Minutes will influence buyer appetite for the Aussie dollar on Tuesday. Hawkish minutes could boost the Aussie dollar, with the RBA facing challenges to return inflation to its target range.

On Thursday, private-sector PMIs will also require consideration. A pickup in private sector activity could bolster the case for a Q4 2024 RBA rate hike. However, input and employment trends will be focal points. Higher input prices and employment will be key factors.

The Kiwi Dollar

Trade data for New Zealand will spotlight the Kiwi dollar. A narrower trade surplus or fall in imports and exports could signal another RBNZ rate cut. New Zealand has a trade-to-GDP ratio above 50%, exposing the economy to a waning global demand environment. Weaker demand may impact the labor market and consumer spending, possibly dampening demand-driven inflation.

The Japanese Yen

On Wednesday, trade data from Japan may impact Japanese Yen demand. Improving trade terms could bolster the Japanese economy and support a more hawkish Bank of Japan rate path. While the BoJ has paused further rate hikes due to the Yen carry trade unwind, the intention is to push rates towards neutral, around 1%.

Private sector PMI numbers also need consideration on Thursday. The Bank of Japan needs the services sector to fuel demand-driven inflation. A pickup in service sector activity and higher input prices could raise expectations of a Q4 2024 BoJ rate hike.

On Friday, inflation figures from Japan could be crucial. A higher-than-expected annual inflation rate ex-food and energy could further influence the BoJ rate path.

Beyond the numbers, investors should consider the parliamentary session. BoJ Governor Kazuo Ueda will likely face tough questions regarding the July rate hike and the resulting market turmoil.

Out of China

The PBoC will be in focus on Tuesday, setting the one-year and five-year loan prime rates (LPR). Unexpected cuts to the LPRs could boost buyer demand for riskier assets, including commodity currencies, such as the Aussie dollar.

Recent economic indicators from China have increased speculation of a fiscal stimulus package from Beijing. Investors should monitor chatter from Beijing. Plans to roll out a fiscal stimulus package could support the appetite for riskier assets.