FX Week Ahead: Inflation, retail sales and GDP

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Inflation, retail sales and GDP

Inflation, retail sales and GDP mark the major theme for the week ahead. The UK will be releasing the monthly inflation figures for January followed by retail sales data later in the week. The inflation data will come after the BoE voted to keep rates unchanged. Retail sales figures will be closely watched data as the previous month showed a 1.5% decline.

In the U.S. the monthly consumer price index data will be coming out this week alongside the retail sales numbers. For the Eurozone, the flash GDP figures will mark the second revised GDP for the fourth quarter. No changes are expected as the Eurozone GDP is forecast to have grown 0.6% during the quarter.

Here’s a quick recap of the key inflation, retail sales and GDP events due this week.

 

UK Inflation expected to ease for a second consecutive month

Following the Bank of England’s decision to leave monetary policy unchanged at the meeting last week, focus turns to inflation data this week. The UK will be reporting the monthly inflation data on Monday. According to the economists polled, UK’s consumer prices are expected to ease to 2.9% in January. This follows December’s 3.0% inflation rise.

Consumer prices are expected to rise at a slower pace in January and marks a second consecutive month of slower inflation. Consumer prices had previously peaked at 3.1% in November. The Bank of England had hiked interest rates in November as inflation surged strongly. The 25 basis point rate hike came as officials tried to contain the strong inflation growth.

Consumer prices in the UK remain stubbornly above the BoE’s 2% inflation target rate. At last week’s meeting, the BoE Governor signaled that interest rates could rise faster than it expected. The markets brought forward the rate hike expectations from August to May. This will potentially mark a second rate hike after the Brexit event in June 2016.

 

U.S. consumer prices and retail sales in focus

Data from the U.S. will concentrate on the consumer price index data and retail sales figures that will be released on Wednesday. Economists polled have forecast that headline CPI in the U.S. is expected to rise 0.3% on a month over month basis. Core CPI that excludes the food and energy prices are expected to rise 0.2%, marking a slower pace of increase on the month.

On an annual basis, the headline CPI is expected to ease to 1.9% after CPI touched 2.1% in December 2017. Core CPI is also expected to ease to 1.7% in January after rising to 1.8%. However, with Trump’s tax cut policies in effect, consumer prices could potentially surprise to the upside.

Retail sales figures are also due on Wednesday. Headline retail sales are expected to rise 0.2%. This marks a slower pace of increase after retail sales jumped 0.4% previously. Excluding autos, retail sales are forecast to rise 0.5%, advancing from December’s gain of 0.4%.

Investors will be closely watching the inflation data especially with expectations mounting that consumer prices could turn the corner. Later in the week, producer prices index data will be coming out as well. Headline PPI is expected to rise 2.4% on the year, easing from 2.6% in December. Core PPI is also expected to ease from 2.4% to 2.1%.

 

Eurozone GDP for Q4 expected to confirm a 0.6% increase

The second revised estimates for the Eurozone GDP covering the fourth quarter ending December 2017 will be released this week. Economists polled expect to see no major changes to the GDP which was confirmed at 0.6% as per the initial estimate that was released a week ago.

Investors are likely to look past the revised GDP estimates with focus already turning to the first quarter of this year. Recent economic data from the Eurozone showed that based on the PMI activity across the manufacturing and services sectors, the Eurozone’s economy started the year on a strong footing.

However, there were some mixed economic signals especially from the forward looking indicators. Data showed that investor confidence in the Eurozone had weakened in February. The sentiment index fell to 31.9 in February compared to 32.9 previously. The decline marked the lowest level since a year. However, current conditions index rose from 48.0 to 49.5.

 

 

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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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