FX Week Ahead: BoC meeting and ECB minutes

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The economic calendar for the week ahead is relatively quiet following a busy start to the month last week. Among the central bank meetings, the Bank of Canada’s monetary policy meeting stands out.

Heading into the BoC meeting, the markets are somewhat divided on whether the BoC will hike rates or not this week. The European Central Bank will be releasing its monetary policy meeting minutes from May.

On the economic side of things, the U.S. producer prices index data will be coming out this week for the month of May. In the UK, the industrial, construction and manufacturing production figures will be coming out over the week.

Elsewhere, China will be reporting on its annual inflation figures for the month of June while the Eurozone’s Sentix investor confidence report will be coming out on Monday. Overall, the data this week is expected to remain light with not many market moving events lined up.

Here’s a quick recap of the economic events for the week ahead.

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Bank of Canada’s monetary policy decision

The Bank of Canada will be holding its monetary policy meeting this week on July 11th, Wednesday. The markets are heading into the event with the expectation that the Bank of Canada will hike rates by 25 basis points this week. This would bring the Canadian interest rate to 1.50%, up from 1.25%. The BoC had last hiked interest rates in January this year.

So far, the BoC has delivered three rate hikes since embarking on a tightening cycle in May 2017. While the Canadian economy has been supportive of the rate hike, the recent uncertainty from the global trade alongside new mortgage lending rules are expected to make the decision of a rate hike questionable.

The BoC had previously signaled that there was more room for the Canadian economy to absorb another rate hike. The markets have been going back and forth on the expectations. Trade concerns are also likely to feature strongly in this week’s interest rate decision.

Canada recently responded to the U.S. trade tariffs on steel and aluminum by hitting back with an increase of 25% on tariffs on certain metals and a 10% increase on other goods that includes alcoholic beverages and coffee.

The U.S. administration responded by threatening to impose tariffs on the automotive sector which is expected to affect the Canadian economy strongly.

While there are concerns about the global trade, the BoC will be taking a close call heading into this week’s monetary policy meeting.

Will the ECB monetary policy minutes offer much for investors?

This week, in the backdrop of a relatively quiet trading week, the meeting minutes from the European Central Bank stands out. The minutes cover the monetary policy meeting held in the month of June.

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The ECB had left the key interest rates unchanged but signaled that its monthly bond purchases would drop from the current $30 billion to $15 billion start from September this year. The ECB also signaled that it would end its QE purchases by December 2018.

Officials however offset the hawkish view by signaling that interest rates would remain unchanged at least until the middle of next year. The meeting minutes will likely reveal the inside thinking among policy makers. It is quite clear that the ECB is also moving to a policy tightening path.

The minutes come following recent inflation estimates suggesting that headline consumer prices rose to 2.0% in June. However, this comes due to the fact of higher energy prices. Excluding the volatile food and energy prices, the core inflation rate still remains around 1.0%.

The meeting minutes would be key as various other peripheral central banks in the Eurozone are preparing to tighten monetary policy as well. The latest being Sweden’s Riksbank which signaled a rate hike by the end of this year.

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