FX Week Ahead: Full steam ahead

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ECB FrankFurt

Economic data for the week ahead slips one notch lower, as data will primarily be focusing on the U.S. consumer price index data that is due to come out on Friday. The retail sales figures are also expected later during the same day.

Elsewhere, the UK will be reporting its manufacturing and industrial production figures.

Data from the Eurozone will see the ECB releasing its monetary policy meeting minutes. The minutes cover the period from the December policy meet. The ECB left its monetary policy unchanged but it upgraded its view of the Eurozone’s GDP while inflation is projected to remain weak. Market participants will be closely looking to the meeting minutes to gauge the sentiment among policy makers.

From the Nordics, the inflation data from Norway is scheduled for this week. The data comes after the monetary policy meeting in December saw the Norges bank announcing it’s plans of exiting from the monetary stimulus program, paving the way towards policy normalization.

The Swedish Riksbank was also hawkish in its last monetary policy meeting. As a result, this week’s inflation reports from both the economies will gain more attention than usual.

Here’s a quick recap into this week’s economic calendar for the currency markets.

 

UK Manufacturing & Industrial Production

Last week’s PMI’s released by Markit across the construction, manufacturing and services sector showed that growth was resilient. Although activity in some of the sectors seemed to have slowed down, the data showed that businesses were doing well in the month of December.

The UK’s all-sector PMI held steady and amid the three sectors, the services PMI surpassed estimates; as the sector rose strongly, compared to manufacturing and construction sectors. A common theme among them was the fact that higher cost pressures had led to the businesses passing these along to consumers.

The manufacturing, industrial and construction output data will be released this week on Wednesday. According to the estimates, manufacturing production is expected to rise 0.3%, up from 0.1% previously. The construction output on a seasonally adjusted basis is forecast to rise 0.1% after the previous month’s data showed a 1.7% contraction in output.

Industrial production is however expected to rise at a slower pace of just 1.8% compared to 3.6% previously. The UK will also be releasing the trade balance figures.

 

U.S. Inflation and Retail sales report

After the hawkish FOMC meeting minutes released last week showed that Fed officials were optimistic about inflation picking up on the back of the tax cuts, the markets will be looking to the inflation and retail sales report for December. Economists forecast the monthly inflation to accelerate 0.2% on a month over month basis. This would bring the headline inflation rate to 2.1% on an annual basis, which is slightly below the 2.2% increase recorded the previous month.

Core inflation rate is expected to remain steady at 1.7%, rising at the same pace as the previous month. Retail sales numbers will also be coming out on Friday simultaneously. Forecasts point to headline retail sales rising 0.5%, more than half of the pace of increase seen in the previous month. Excluding autos, retail sales are expected to rise 0.5%, down from 1.0% increase seen previously.

With the December holiday season amid the tax cut law being passed, there is a possibility that both retail sales and inflation could potentially surprise to the upside. However, the inflation data is unlikely to impact the market much with the Fed looking at the core PCE index as its measure of inflation.

 

 

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John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

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