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FX Week Ahead: Fed minutes and UK data

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The economic calendar for the week ahead is broadly limited to some key themes of Fed minutes and UK data. The FOMC meeting minutes will be coming out on Wednesday which is likely to remain in the spotlight. On the economic front, the UK will see a busy week.

Data this week includes the inflation, retail sales and GDP numbers coming up. The data is likely to see the British pound turning volatile over the week, especially with GDP numbers forecast to remain unchanged at 0.1% increase in the first quarter.

Here is quick recap of the Fed minutes and UK data happening this week.

Fed minutes to give clues into rate hikes and inflation

The FOMC meeting minutes will be one of the key data points for investors next week. The meeting minutes will be released on Wednesday and it covers the FOMC meeting held in early May.

Federal Reserve officials voted to keep interest rates unchanged at 1.50% – 1.75% at its last monetary policy meeting. This was widely in line with market expectations. The central bank’s statement also introduced new wording on inflation which suggested that officials will tolerate an overshoot of inflation in the near term.

The “symmetric inflation” target was seen to help soothe investor concerns about a potential faster pace of rate hike from the Fed officials. Consumer prices, as measured by the Fed’s preferred gauge of inflation, the core PCE price index was seen rising 1.9% on the year in March.

This falls close to the Fed’s 2% inflation target rate. Despite introducing the wording about symmetric inflation, many other FOMC members have maintained that interest rates in the United States will need to continually rise in order to prevent the economy from overheating.

Various Fed members had spoken at different events over the past few weeks which pointed to the underlying theme. The Fed minutes will give investors clues into the future plans for rate hikes. For the moment, central bank officials have maintained that interest rates will rise two more times this year.

However, the markets are expecting to see the Fed hike three times over the course of the year.

UK Inflation data and second revised GDP estimates

Economic data from the United Kingdom will see the key releases of the UK’s inflation rate report and the second revised GDP estimates for the first quarter this week. The data comes following last week’s release of the labor market data for the three months ending March.

Inflation report is expected to be released on Wednesday and covers the period of April. According to the economists polled, the UK’s annual inflation rate is forecast to rise 0.5% on the month over month basis. This marks a strong pace of increase in inflation on a monthly basis. However, on an annualized basis, the yearly inflation rate is expected to remain unchanged at 2.5%. This marks a second consecutive month of consumer prices staying unchanged. The core inflation rate however forecast to rise at a slower pace of 2.1%.

The monthly retail sales report is also due to be released on Thursday. Headline retail sales are forecast to decline 0.7% on the year in April. This follows a 1.1% increase seen previously. Retail sales excluding gasoline is expected to remain flat after a 1.1% increase last month.

Finally, on Friday the second revised GDP estimates will be coming out. Economists forecast that the UK’s first quarter GDP was unchanged 0.1%. This falls in contrast to the recent comments by the Bank of England’s Carney who said that growth might have improved. An unchanged print on the GDP report could potentially confirm a weak patch of economic growth in the first quarter.

 

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