The Week Ahead: US Inflation and Retail Sales to Influence Fed Rate Cut Plans

Highlights

• The US CPI Report could impact investor bets on a May Fed rate cut.
• UK economic indicators may leave the Bank of England hawks in the driving seat.
• Economic indicators from Australia and Japan will influence RBA and BoJ policy intentions.

The US Dollar

On Monday, consumer inflation expectations will draw investor interest before the US CPI Report. Expectations of sticky inflation could trigger buyer demand for the greenback. However, the US CPI Report will have more impact.

The US CPI Report will take center stage on Tuesday. Hotter-than-expected numbers could push back bets on a Fed rate cut to June.

US jobless claims and retail sales figures warrant investor attention on Thursday. Tight labor market conditions and upward trends in consumer spending could fuel demand-driven inflation.

On Friday, producer price figures for January also need consideration. Producer price trends reflect the demand environment. Producers increase prices in a high-demand environment and pass prices onto consumers.

Beyond the numbers, investors must track FOMC member speeches. FOMC members Kashkari (Mon), Goolsbee (Wed), Barr (Wed), Bostic (Thurs), Waller (Thurs), and Daly (Fri) are on the calendar to speak.

Views on the economic outlook, inflation, and the Fed rate path would move the dial.

The EUR

On Tuesday, German and Eurozone ZEW Economic Sentiment numbers for February will be in focus. German economic indicators continue to signal a Q1 economic recession that could impact the Eurozone economy. Weaker-than-expected numbers could impact buyer demand for the EUR/USD.

The Eurozone economy will be in the spotlight on Wednesday. Revisions to first estimate GDP numbers for Q4 could influence bets on an April ECB rate cut.

On Thursday, Eurozone trade data also needs consideration. Trade data from Germany reflected a deterioration in trade terms. Similar weakness across the euro area could raise expectations of a Eurozone economic recession.

However, German and French inflation figures will influence the appetite for the EUR/USD. On Friday, German wholesale prices and finalized consumer price inflation from France will be in focus. Softer inflation numbers would support bets on an April ECB rate cut.

Beyond the stats, investors must monitor ECB member commentary. ECB President Lagarde (Thurs) and Chief Economist Philip Lane (Mon/Thurs) are on the calendar to speak. Executive board members Piero Cipollone (Mon/Wed), Claudia Buch (Mon/Tues), Anneli Tuominen (Tues), Luis de Guindos (Wed), and Isabel Schnabel (Fri) will also deliver speeches.

The Pound

On Tuesday, UK labor market figures will put the Pound under the spotlight. An increase in the UK unemployment rate and softer wage growth figures could enable the BoE to begin discussions about rate cuts.

However, UK inflation numbers on Wednesday also need consideration. A pickup in the annual inflation rate and hotter-than-expected wage growth numbers could leave the BoE hawks in the driving seat.

On Thursday, Q4 GDP figures will impact buyer demand for the Pound. A more marked quarter-on-quarter contraction and a hawkish Bank of England could raise expectations of a prolonged UK recession.

UK retail sales figures for January will also garner investor interest on Friday. A larger-than-expected increase in retail sales could fuel demand-driven inflation and delay BoE discussions about rate cuts.

Investors must also consider Bank of England commentary. Bank of England Governor Andrew Bailey (Mon/Wed) and Chief Economist Huw Pill (Fri) are on the calendar to speak. Monetary Policy Committee members Megan Greene and Catherine Mann will be in focus on Thursday.

The Loonie

On Thursday, housing starts will be in focus. However, unless housing starts materially decline, the numbers will unlikely affect buyer demand for the Loonie.

Wholesale sales numbers for December will likely draw investor interest on Friday.

The OPEC (Tues) and IEA (Thurs) monthly reports also need consideration.

The Australian Dollar

On Tuesday, consumer and business confidence numbers will influence the buyer appetite for the Aussie dollar. Consumer confidence figures could have more impact. A pickup in consumer confidence could signal an upward trend in consumer spending. Consumer spending influences demand-driven inflation and the RBA interest rate path.

However, labor market data for January and consumer inflation expectations could have more impact on Thursday. Tight labor market conditions could support wage growth and consumer spending.

Beyond the numbers, RBA Board Member Kohler is on the calendar to speak. Views on inflation, the economy, and the RBA interest rate trajectory would move the dial.

The Kiwi Dollar

On Tuesday, business inflation expectation numbers for Q1 will impact the buyer demand for the Kiwi dollar. Softer-than-expected inflation expectations could influence the RBNZ interest rate path.

However, January electronic retail card spending figures also need consideration on Wednesday. An upward trend in consumer spending could fuel demand-driven inflation, and RBNZ plans to cut rates.

On Friday, Business PMI numbers for January will be in focus. A larger-than-expected increase in the PMI would support the Kiwi dollar.

However, investors must also consider RBNZ commentary. RBNZ Governor Orr is on the calendar to speak on Thursday. Views on inflation and forward guidance on monetary policy would move the dial.

The Japanese Yen

On Tuesday, producer price and machine tool orders will impact buyer demand for the Japanese Yen. Upward trends in producer prices could signal a pickup in demand-driven inflation. Better-than-expected machine tool orders could also indicate an improving macroeconomic backdrop.

However, Q4 GDP numbers and industrial production figures (Thurs) could have more impact. An economic recovery in Q4 would support investor bets on an April Bank of Japan pivot from negative rates. Investors must also consider revisions to finalized industrial production numbers for December.

Beyond the stats, Bank of Japan comments relating to monetary policy would also move the dial.

Out of China

There are no economic indicators to consider. The Chinese markets are closed for the Chinese New Year. However, reports on consumer spending and stimulus chatter could influence market risk sentiment.