Weekly Market Outlook

Weekly Market Outlook: Major Currencies turn to Inflation Data

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Inflation data will be in focus this week, with no meetings for central banks on the economic calendar. Traders will be watching for inflation figures in the United States, Canada and the UK. Major data on the docket also include the Australian employment data, US retail sales and Q2 GDP numbers in New Zealand. 

USD higher ahead of Inflation Figures 

The dollar index has been trading higher posting its first weekly gain in three weeks ahead of multiple data releases. The inflation data for August is scheduled on Tuesday. Market expectations refer to a modest slowdown in inflation from July’s 13-year high of 5.4%. USD traders will be paying attention to any shift in inflationary pressures that could impact the pace of Fed tapering in the coming months.

Monthly CPI is expected to decline slightly to 0.4% from 0.5% in July, while the core index is seen to stabilize at 0.3%. 

The impact of inflation data on the dollar paths will be monitored closely while we are approaching the Federal Reserve meeting on September 22nd as market participants are pricing in a taper announcement if inflation remains at highest levels. Positive figures will boost the dollar gains against counterparts, supporting hopes for tapering measures soon.

Retail sales numbers for August are seen pointing to a decline in domestic trade, slumping for the second consecutive month. Retail sales are expected to fall by 0.8% in August, following a 0.4% decline in July, with core sales shrinking by 0.8% on a monthly basis. 

UK Inflation to bounce from BoE’s Target 

The GBP’s economic calendar is packed with updates on inflation, unemployment and wage, and retail sales. Consumer prices in the UK are anticipated to rise by 2.9% in August, the biggest increase since January 2018, adding to speculations about early tapering by the Bank of England to tamp the surging inflation even with the slowing economic recovery from Covid-19. The core inflation is set to rise to 2.8% from 1.8% in July. 

Meanwhile, the wage growth is expected to slow down to 8.2% in July, with the unemployment rate falling from 4.7% to 4.6%. Retail sales are seen to bounce from recent falls, with an expected rise of 0.5% in August after a 2.5% slump in the month earlier. 

Weekly Market Outlook
Bank of England

The BoE will be meeting next week as market participants are pricing for a possible reduction announcement in asset purchases to contain the accumulating inflationary pressures. 

The Bank of England left policy unchanged during its August meeting, with policymakers reiterating that they do not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably. Officials signaled that some modest tightening of monetary policy over the next two years will likely be necessary if the economy continues to improve. 

Are Canadian Inflationary Pressures transitory? 

Weekly Market Outlook
Canadian Dollar

Canadian inflation data will be released on Wednesday, a week later from the BoC’s policy meeting. The Bank of Canada held its overnight interest rate at 0.25% in line with forecasts, and maintained its asset purchases at $2 billion per week, following a $1 billion cut in the previous meeting. 

The bank expects the economy to strengthen in the second half of 2021, after a 1% contraction in the June quarter. Although the fourth wave of COVID-19 infections and ongoing supply disruptions could weigh on the recovery.

Headline inflation is anticipated to cool down to 3.2% through the year ending in august. Core inflation, which excludes food and energy prices, is expected to rise annually to 3.7%, heading from the central bank’s target at 2%. 

According to the policy statement, the central bank judged the inflationary pressures as transitory, but their persistence and magnitude are uncertain and will be monitored closely.

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