The Week Ahead: Will Powell and Lagarde Greenlight September Rate Cuts?

The US Dollar

On Monday, July 15, the NY Empire State Manufacturing Index will put the US dollar in focus. Recent US economic indicators, including labor market data, have shown cracks in the US economy. An unexpected fall in the Index could raise concerns about the US economy.

However, retail sales figures for June will likely impact the US dollar more on Tuesday, July 16. Downward trends in retail sales could soften demand-driven inflation and allow the Fed to cut interest rates. Additionally, private consumption contributes over 60% to the US economy. A pullback in retail sales would impact the US economy.

US jobless claims will be in focus on Thursday, July 18. Weaker labor market conditions could support a more dovish Fed rate path. Higher unemployment could affect wage growth and reduce disposable income. Downward trends in disposable income may curb consumer spending and dampen demand-driven inflation.

On Thursday, Philly Fed Manufacturing Index numbers are also out. However, the jobless claims will likely impact the Fed interest rate trajectory more.

With retail sales and the labor market in focus, investors should also monitor Fed commentary. Fed Chair Powell is on the calendar to speak on Monday.

Will the Fed Chair green light a September Fed rate cut?

Recent inflation figures fueled investor bets on a September Fed rate cut.  According to the CME FedWatch Tool, the probability of a September Fed rate cut surged from 77.7% on July 5 to 96.3% on July 12.

The EUR

On Monday, German retail sales could affect buyer demand for the EUR/USD and the ECB rate path. Weaker consumer demand could further soften inflationary pressures. A softer inflation outlook would support a Q3 2024 ECB rate cut.

ZEW Economic Sentiment figures for Germany and the Eurozone will be in focus on Tuesday. Recent services PMIs from the Euro area signaled a weakening economic environment. Deteriorating sentiment toward the German and Eurozone economies could signal a Q3 2024 ECB rate cut.

However, trade data for the Eurozone also needs consideration. Upward trends in imports and exports could suggest an improving demand environment and drive buyer demand for the EUR.

On Wednesday, crucial inflation figures for the Eurozone will draw investor interest. Softer-than-expected core inflation could cement a Q3 2024 ECB rate cut.

The all-important ECB monetary policy decision and press conference will influence buyer appetite for the EUR on Thursday. Investors expect the ECB to leave interest rates unchanged. However, ECB President Christine Lagarde could signal a September rate cut. In a recent Reuters poll, 80% of economists projected September and December rate cuts.

With inflation the focal point, German producer prices will require consideration on Friday. Upward trends in producer prices could signal a pickup in demand-driven inflation. Producers raise prices in a higher-demand environment, passing costs onto consumers.

The Pound

On Wednesday, UK inflation numbers will be a crucial data release for the Pound and the Bank of England. Lower-than-expected inflation could support an August BoE rate cut.

However, UK labor market data could influence the BoE rate path. Weaker wage growth and a higher UK unemployment rate may green-light an August rate cut. Softer wage growth would reduce disposable income and consumer spending. Downward trends in consumer spending could dampen demand-driven inflation.

On Friday, UK retail sales will require consideration. A fall in retail sales could soften demand-driven inflation. Moreover, weaker retail sales may also impact the UK economy. Private consumption contributes over 60% to the UK economy.

The Loonie

Inflation figures from Canada will influence buyer appetite for the Loonie on Tuesday. Softer-than-expected core inflation figures would support a Bank of Canada interest rate cut in the near term.

Furthermore, retail sales figures also need consideration on Friday. A higher-than-expected fall in retail sales could signal a more dovish BoC interest rate trajectory.

Other stats include wholesale sales, housing starts, and RMPI numbers. However, the inflation and retail sales figures will garner more interest.

The Australian Dollar

Australian labor market data will put investor focus on the Aussie dollar on Thursday.

A higher unemployment rate could affect wage growth and lower disposable income. A fall in disposable income may reduce consumer spending and dampen demand-driven inflation. A softer inflation outlook could ease pressure on the RBA to raise interest rates.

Recent Australian inflation figures fueled investor expectations of an August RBA interest rate hike.

The Kiwi Dollar

On Friday, inflation numbers from New Zealand will impact buyer demand for the NZD/USD. Softer-than-expected inflation could support a 2024 RBNZ interest rate cut.

Last week, the RBNZ left the cash rate at 5.5%. However, the RBNZ expected inflation to return to the target range of 1% to 3% in H2 2024.

In Q1 2024, the annual inflation rate was 4.0%.

The Japanese Yen

On Wednesday, the Reuters Tankan Index may influence buyer demand for the Japanese Yen. Higher-than-expected numbers could support a 2024 Bank of Japan interest rate hike.

The Index considers sentiment across the private sector. Improving sentiment could signal a pickup in economic activity and labor market conditions.

Tighter labor market conditions could raise wages and disposable income. Higher disposable income could fuel household spending and demand-driven inflation.

However, trade data from Japan also requires consideration on Thursday. Lower imports and exports could counter hopes of an improving macroeconomic environment.

On Friday, crucial inflation figures for June could fuel investor expectations of a Q3 2024 BoJ rate hike. Higher-than-expected numbers may raise investor bets on a July BoJ interest rate hike.

Beyond the numbers, investors should monitor BoJ commentary amidst shifting bets on a July BoJ rate hike.

Out of China

It is a pivotal start to the week, with Q2 GDP numbers from China in focus. Slower-than-expected economic growth could impact buyer demand for riskier assets.

The Q2 GDP numbers will be the focal point. However, investors should consider the retail sales, industrial production, and fixed asset investment figures.

Weak numbers may fuel expectations of further fiscal policy measures to bolster the Chinese economy. The Communist Party’s third plenum will take place this week. A lack of policy measures to support the Chinese economy may disappoint investors and affect market risk sentiment.