The Week Ahead – The Fed, the UK Economy, and the BoE Are in Focus

On the Macro

It’s a busy week ahead on the economic calendar. Economic indicators from Europe, the UK, and the US will give investors a mid-year view of the macroeconomic environment.

Central banks will also be back action, with the Bank of England delivering its pre-summer interest rate decision and Fed Chair Powell giving testimony on Capitol Hill.

For the Dollar:

It is a quieter week ahead on the US economic calendar.

Investors must wait until Thursday for jobless claims that will move the dial. A fall in jobless claims would support a July Fed interest rate hike. However, we expect prelim private sector PMIs for June to have more impact on Friday. The services PMI will have more influence, with softer numbers favoring a Fed pause.

While the stats will move the dial, Fed chatter will likely garner more interest. FOMC members Bullard, Williams, Mester, Bowman, and Bostic are on the calendar to speak. However, Fed Chair Powell will have more impact. The Fed chair will give testimony on Capitol Hill on Tuesday and Wednesday.

We expect market sensitivity to Powell’s economic outlook and monetary policy comments.

For the EUR:

It’s also a quieter week for the EUR.

On Tuesday, German wholesale inflation figures will draw interest. With inflation the ECB focal point, softer wholesale inflation numbers would question the ECB’s upward revision to inflation for 2023.

However, prelim private sector PMIs for France, Germany, and the Eurozone will have more impact. The Eurozone economy has formed cracks. A deeper contraction in the manufacturing sector and slower growth across the services sector would weigh.

Beyond the stats, investors should also consider ECB commentary. ECB Chief Economist Philip Lane (Mon), and Executive Board members Luis de Guindos (Mon, Tues, Thurs), Fabio Panetta (Thurs, Fri), Andrea Enria (Tues), Isabel Schnabel (Mon, Wed, Sat), and Elizabeth McCaul (Tues) are on the calendar to speak.

For the Pound:

It is a busy week ahead for the Pound. The UK CPI report will move the dial on Wednesday. With the BoE delivering the June interest rate decision on Thursday, the Pound will respond to sticky inflation.

The Bank of England will deliver its pre-summer interest rate decision on Thursday. A hawkish 25-basis point interest rate hike would align with recent economic indicators, suggesting the need for more aggressive policy moves to tame inflation.

Retail sales figures and prelim private sector PMI numbers wrap up a busy week on Friday. We expect the retail sales and services PMI to have more impact. Strong retail sales and a pickup in service sector activity would support further BoE policy moves.

For the Loonie:

It is a quiet week ahead on the economic calendar for the Loonie.

Retail sales will draw interest on Wednesday. After a marked decline in March, a pickup in retail sales would raise the bets on another BoC rate hike.

Other stats include RMPI, manufacturing sales, and wholesale sales numbers. However, we don’t expect the stats to influence.

Out of Asia

For the Aussie Dollar:

It is a quiet week for the Aussie Dollar. There are no economic indicators to provide direction. However, the RBA meeting minutes will garner interest on Tuesday. After the June interest rate hike, investors will look for clues on whether another move is on the horizon.

RBA Assistant Governors Kent and Bullock are on the calendar to speak on Tuesday and could give the markets a better sense of where the RBA stands post-June.

For the Kiwi Dollar:

It’s a quieter week for the Kiwi Dollar. Consumer sentiment and trade data will be in focus. While we expect sensitivity to the consumer sentiment numbers, the trade data will have more impact.

Weak global demand has weighed on trade terms. A slide in exports would test buyer appetite.

For the Japanese Yen:

It is a busy week for the Japanese Yen. Industrial production numbers will draw interest on Tuesday. Following the better-than-expected core machinery orders in April, an increase in industrial production would deliver Yen support.

However, inflation and private sector PMIs will have more impact on Friday. The markets will look for reasons for the Bank of Japan to tweak its ultra-loose monetary policy position. Softer inflation and a pickup in private sector activity would support a tweak.

From the Bank of Japan, the monetary policy meeting minutes for the May meeting will also draw interest on Wednesday. However, surprises are unlikely, with last week’s Bank of Japan press conference more relevant to investors.

Out of China

It is a quiet week ahead, with no economic indicators for investors to consider in a shortened week.

However, the PBoC will announce the Loan Prime Rates on Tuesday, which will influence. Disappointing economic indicators forecast the PBoC to lower borrowing costs earlier this month. A cut to the LPRs should support riskier assets.

Economists forecast the PBoC to cut the 5-year LPR from 4.3% to 4.2% and the 1-year from 3.65% to 3.55%.