FX Week Ahead: UK revised GDP, wage data and FOMC minutes

Economic data for the week ahead will focus on the key themes of revised GDP figures from the UK and the monthly wage data. After last week’s inflation data showed that consumer prices increased 3.0%, the wage growth figures will be closely watched. The second revised estimates for the fourth quarter of 2017 will also be coming out with estimates confirming that the UK’s economy advanced 0.5% during the period.

Data from the United States is limited to the FOMC meeting minutes that will be coming out on Wednesday. The minutes could potentially signal the markets of a possible rate hike in March. However, considering that this will be the first meeting chaired by the new Fed Governor, Jerome Powell, the chance of interest rates staying unchanged is also a possibility.

Flash manufacturing PMI’s from the U.S. and the Eurozone will show how the respective economies fared during the second month of the year.

Elsewhere, inflation data is expected from the Eurozone and Canada. The ECB will be releasing the monetary policy meeting minutes over the week as well. Data from New Zealand will see the producer prices data followed by the quarterly retail sales report.

Here’s a quick recap of the key economic events due this week.

 

FOMC meeting minutes in focus as markets expect to see a March rate hike

The Federal Reserve Bank had held its first monetary policy meeting late in January this year. No changes were made to the interest rates which remained steady at 1.50%. It was also the last FOMC meeting that was chaired by the outgoing Fed chair, Janet Yellen. The Fed’s statement reflected renewed confidence among Fed officials that inflation will start to rise quickly.

The FOMC meeting minutes will cover the January policy meeting. No surprises are expected as the markets are anticipating that the meeting minutes will be hawkish following the hawkish Fed statement. With the new Fed Governor, Jerome Powell taking charge from February onwards, the March FOMC meeting is starting to gain prominence.

Recent economic data from the United States showed that consumer prices were starting to rise. Headline CPI registered a 2.1% increase on an annual basis while core CPI was also rising. Although the Fed uses the core PCE data as its gauge of inflation, the increase in the CPI is expected to see the core PCE data also rising in the near term.

Producer price index data showed that on an annual basis, PPI increased 2.7% beating estimates of a 2.5% increase. Following the reports, the futures markets were seen bullish on rate hikes. Currently, the markets are assigning an 80% probability of a rate hike in March. The Fed meeting minutes in this aspect to provide crucial evidence to solidify this view.

 

Can UK wage growth catch up with inflation?

After last week’s inflation report showed that consumer prices in the United Kingdom edged back higher to post an annual gain of 3.0%, the labor market data coming up this week will be key for investors.

According to the economists’ poll, average earnings in the UK, including bonuses are expected to stagnate, rising at a pace of 2.5% on the year. This would mark an unchanged print compared to the 2.5% increase seen previously. Excluding bonuses, average earnings are also not expected to change much, with forecasts pointing to a 2.4% annual increase.

The faster pace of inflation gains had prompted the officials at the Bank of England to signal that interest rate hikes could also rise sooner than expected. With wage growth staying flat and the prospects of another rate hike looming, the pressure on the UK’s household wages continues to show no signs of easing.

Later in the week, on Thursday, the quarterly GDP data will be coming out. This will be the second revision for the period covering the three months ending December 2017. UK’s GDP is expected to remain unchanged and confirms the 0.5% increase as seen from the first estimates. On an annual basis, the GDP is expected to show a 1.5% increase on the year.