FX Week Ahead: ECB Meeting and U.S. advance GDP report

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The economic calendar for the week ahead will be dominated by the preliminary GDP report from the U.S. The ECB’s monetary policy meeting is also likely to garner some attention amid a rather slow week.

Australia will be reporting on its quarterly CPI numbers this week. In the first quarter, Australia’s inflation rate rose at a pace of 0.4% which pushed the annual inflation rate to 1.9%. For the second quarter, the markets are expecting to see that the quarterly inflation rate rising 0.6%. On an annual basis, this is expected to put the Australian inflation rate to 2.2%.

Elsewhere, most of the economic releases are mostly second-tier data and unlikely to impact the markets much amid the higher impact events such as the advance GDP report from the U.S.

The market sentiment is also likely to remain mixed with the U.S. trade war rhetoric currently remaining in check.

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

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ECB’s monetary policy to remain on the sidelines

The European Central Bank will be holding its monetary policy meeting this week. Investors are expecting this ECB meeting to remain subdued given the fact that the central bank announced changes to its policy just the month before in June.

During the June monetary policy meeting, ECB officials announced that the monthly bond purchases would be cut by half to 15 billion euro starting September 2018. Officials also announced that the remaining bond purchases would end by December 2018.

Officials have so far maintained a balancing act, by noting that the central bank would not hesitate to continue easing policy if the economic conditions deteriorated.

Mario Draghi is expected to maintain the status quo at this week’s meeting. Economic data since the previous ECB meeting did not show any surprises. The headline inflation rate has remained at 2.0% while core inflation rate was seen rising at a slower pace of 0.9%. Although headline inflation is seen near the ECB’s 2% inflation target rate, core CPI has remained weak.

This is expected to keep officials toeing the line without coming out too hawkish. Other economic data over the week include the flash manufacturing and services PMI figures for the month of July. Later in the week, France will be reporting on its preliminary second-quarter GDP numbers.

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U.S. second-quarter GDP set to surge

The U.S. advance GDP report for the second quarter will be released this week on Friday. Economists polled; forecast that the U.S. economy advanced at a pace of 4.0%. This would mark the strongest pace of quarterly growth since the third quarter of 2014.

Incoming data for the three months ending June 2018 project that the estimates on the GDP growth are in line with the strong pace of growth that was witnessed.

Various other GDP trackers also indicate a strong surge in GDP growth during the period. The Atlanta FED’s GDPNow model is projecting an average growth rate of 4.5%.

The U.S. economy was seen rising at a pace of 2.0% in the first three months of the year. Therefore, a stronger pace of GDP growth is widely priced in. However, concerns still remain especially with the third quarter GDP likely to take a hit. This comes due to the possible effects of higher trade tariffs imposed by the U.S. administration across most of its trading partners.

Still, with a fairly better than expected GDP result for the second quarter, the outcome is likely to keep the Fed’s policy course unchanged.

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