Week Ahead: US Dollar Faces Inflation Test

Week Ahead: US Dollar Faces Inflation Test

Written by: Phil Evans

After sinking to its lowest level since the start of 2015, the US dollar faces a huge test this week as markets look to key CPI inflation data for a signal about where the Federal Reserve could be about to take monetary policy.

US CPI

The big macro economic data comes from the US in the shape of consumer price inflation figures for the last month. The data is a key marker for the US Federal Reserve’s monetary policy as it aims to achieve its inflation target of 2%.

At its last meeting the FOMC noted that it is ‘monitoring inflation developments closely’. This was the first real signal the Fed could be about to blink and is no longer convinced that the strong labour market is enough to get inflation to its target rate. This would chime with the hidden slack we know is in the labour market, which is keeping a lid on wages and therefore inflation.

RBNZ

The Reserve Bank of New Zealand meets on Thursday (Wednesday in Europe) with markets once again expecting no change in rates. But we’re looking for any further commentary from the central bank on the exchange rate after the kiwi rose to its strongest level in more than two years against the US dollar despite inflation in the three months to June falling to zero.

Earnings

Corporate earnings season has peaked but there is no shortage of S&P 500 and FTSE 350 stocks reporting this week. Highlights on Wall Street are the big retailers – JC Penney, Nordstrom and Macy’s; all of which are struggling as they wrestle with the disruptive effect of Amazon on the sector. These earnings reports could make for some interesting reading. Worldpay, PaddyPower Betfair and DFS Furniture are among the highlights in a smattering of FTSE releases this week.

UK Manufacturing

For sterling, cable holding around the $1.32 level reached last week will depend on the economic data remaining firm despite all the Brexit uncertainty. This week’s test comes in the shape of Thursday’s official manufacturing production figures and goods trade balance.

Source: ETX Capital