The Week Ahead: The Fed, the Bank of England, and the Bank of Japan

The US Dollar

US consumer confidence and JOLTs Job Openings will influence US dollar demand on Tuesday, July 30. Upward trends in consumer confidence may boost consumer spending and demand-driven inflation.

Furthermore, higher job openings may indicate a tighter labor market, supporting wage growth. Higher wages may raise disposable income and drive consumer spending. Signals of rising consumption may ease expectations of multiple 2024 Fed rate cuts.

On Wednesday, July 31, ADP nonfarm employment figures will garner investor interest. A smaller-than-expected increase could raise bets on multiple 2024 Fed rate cuts. A softer labor market may affect wage growth and reduce disposable income.

Jobless claims will also need consideration on Thursday, August 1. Rising claims would signal deteriorating labor market conditions.

On Friday, August 2, the US Jobs Report will be the crucial data release. Lower wage growth and a higher unemployment rate would increase expectations of September and December Fed rate hikes.

The FOMC interest rate decision and rate statement will also move the dial on Wednesday. Investors expect the Fed to hold interest rates steady. However, hints of multiple 2024 Fed rate cuts may impact US dollar demand.

The EUR

On Monday, July 29, German retail sales may influence buyer appetite for the EUR/USD and the ECB rate path. Another fall in retail sales could ease inflationary pressures, supporting a more dovish ECB rate path.

French, German, and Eurozone GDP numbers require consideration on Tuesday. Lower-than-expected numbers would give the ECB reason to cut rates in September to bolster the Euro area economy.

However, inflation numbers from Germany need to reflect softer inflationary pressures on Tuesday. The ECB’s focus remains on wage growth and inflation.

On Wednesday, inflation numbers for the Eurozone will influence the ECB rate path. Lower-than-expected numbers could cement a September ECB rate cut.

Eurozone unemployment and finalized manufacturing PMI numbers for the Eurozone and Euro area member states require consideration on Thursday. Unless there is a revision to the Eurozone’s preliminary number, the unemployment rate could impact the EUR/USD more. A higher unemployment rate would support investor bets on a September ECB rate cut.

The Pound

House prices and finalized Manufacturing PMI numbers may impact demand for the Pound on Thursday. Higher house prices could signal robust demand and a resilient UK economy, testing investor expectations of a 2024 Bank of England rate cut.

The Bank of England will also deliver its August interest rate decision on Thursday. Economists expect the BoE to cut interest rates by 25 basis points. A rate cut and suggestions of a second rate cut could reduce GBP/USD demand. The vote count could indicate how dovish the BoE is on monetary policy.

The Loonie

On Wednesday, GDP numbers for Canada will put the Loonie in the spotlight. An unexpected contraction in the Canadian economy could raise investor bets on a third Bank of Canada rate cut.

Higher bets on a BoC rate cut would impact demand for the Canadian dollar.

The Australian Dollar

On Wednesday, inflation and retail sales will affect demand for the Aussie dollar. However, the inflation numbers will likely impact the AUD/USD more. Higher inflation in Q2 could force the RBA to hike rates.

On Friday, producer prices may also influence the RBA rate path. Economists consider producer prices a leading indicator of consumer prices. Producers increase prices in a rising demand environment, passing costs onto consumers.

Other stats include housing sector data. However, the inflation figures will likely impact the AUD/USD more.

The Japanese Yen

On Wednesday, the highly anticipated Bank of Japan monetary policy decision and press conference will impact Japanese Yen demand. Uncertainty about the BoJ’s monetary policy outlook shrouds the Yen. An interest rate hike and a sizeable cut to Japanese Government Bonds (JGB) purchases could narrow interest rate differentials with the US dollar and sink the USD/JPY.

Forward guidance could be pivotal for bolstering the Yen.  Hints of more rate hikes and further cuts to JGB purchases may raise Yen demand.

Out of China

On Wednesday, NBS private sector PMU numbers need consideration. A more marked contraction across the manufacturing sector and a contraction across the services could affect market risk appetite.

However, the Caixin Manufacturing PMI could impact market risk sentiment more on Thursday. Softer manufacturing sector activity may signal weaker growth in Q3 2024, raising expectations of more stimulus measures to bolster the Chinese economy.

The Chinese economy grew by 4.7% in Q2 2024, down from 5.3% in Q1.