FX Week Ahead: UK Jobs and Inflation, FOMC Meeting minutes

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The week ahead will be somewhat busy with data including the release of the FOMC meeting minutes, Eurozone flash GDP estimates, the UK’s inflation and wage growth data and Australia set to report its jobs report. While trading volumes continue to remain low, the broader theme has become the ongoing tensions between the United States and North Korea which are likely to keep investors cautious.

Here is a brief recap on what to expect from the currency markets in the week ahead.

UK Inflation and jobs data in focus

A busy week from the UK, data includes inflation, jobs and retail sales numbers. Starting Tuesday, the UK’s inflation data is expected to show a flat reading on a month over month basis. However, headline consumer prices are forecast to rise 2.7% on the year in July.

This is a slight increase from the 2.6% inflation rate registered in June. The uptick in inflation is once again likely to put pressure on the Bank of England. The central bank, in its latest meeting, signaled that rates would not rise anytime soon, pushing aside expectations of a rate hike that was anticipated from the market participants.

UK Retail Sales: 2.9% y/y, June 2017. Source: Tradingeconomics.com
UK Retail Sales: 2.9% y/y, June 2017. Source: Tradingeconomics.com

On Wednesday, the UK’s monthly jobs data will be released. No changes are forecast to the UK’s unemployment rate. For the three months ending June, the unemployment rate in the UK is forecast to remain steady at 4.5%. The focus will, of course, turn to the wage data.

The average earnings including bonuses are expected to rise 1.8%, rising at the same pace as before. An uptick in inflation, while wage data staying flat, is expected to put pressure on the UK households. This is in turn likely to see the weak trend in the GDP growth continue.

On Thursday, the retail sales data will be released. As expected based on the economic outlook, retail sales in the UK is expected to weaken. On a year over year basis, headline retail sales including gasoline are expected to rise just 1.4%. This is slower than the 2.9% increase previously. Excluding gasoline, retail sales are expected to rise 1.2%, signaling a sharp decline after retail sales excluding gasoline rose 3% the month before.

FOMC Meeting minutes – Likely to be a non-event

The week ahead from the US will see the release of the monthly retail sales figures for July on Tuesday followed by the FOMC meeting minutes on Wednesday. The control group retail sales which is a major part of the GDP was seen declining 0.1% in June. However, household income growth is expected to push this back higher. Economists expect to see a rebound in July.

Overall, the consensus estimates point to a 0.4% increase in the control group retail sales. Excluding autos, the U.S. retail sales are expected to rise 0.3% on a month over month basis. The U.S. Empire State Manufacturing Index survey will also be coming out on Tuesday with forecasts pointing to a modest increase from 9.8 to 10.

Building permits data will be out on Wednesday ahead of the FOMC meeting minutes. Economists forecast that US building permits rose 1.25 million, rising at the same pace as the month before. Later in the day, the Fed’s meeting minutes from the August monetary policy meeting will be released.

Investors will be eager to browse through the meeting minutes, which is likely to show the concerns among Fed officials on the weak pace of inflation. The minutes are also likely to reveal the Fed’s plans for normalizing the balance sheet. This is expected to begin in September.

Australia jobs data expected to remain steady

The Australian Bureau of Statistics will be releasing the monthly jobs report.  Overall, an improvement in the labor market has managed to contribute to the Australian dollar’s exchange rate this year. The currency has managed to post impressive gains over the past few weeks.

Australia Unemployment Rate: 5.6%, June 2017. Source: Tradingeconomics.com
Australia Unemployment Rate: 5.6%, June 2017. Source: Tradingeconomics.com

According to the economists polled, the monthly employment change is expected to show 20k jobs being added. This is significantly higher from the 14k headline print seen previously. The unemployment rate is however expected to remain steady at 5.6%.

The quarterly wage price index is expected to remain steady at 0.5%, rising at the same same pace from the previous quarter. Besides the above data, the RBA will also be releasing its monetary policy meeting minutes earlier in the week on Tuesday.

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