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Weekly Market Outlook: Fed Minutes, RBNZ Decision, and PMIs to watch

Weekly Market Outlook — FX markets are in for another busy week, as the minutes of the latest FOMC meeting are due out as well as a rate decision in New Zealand that investors have divided opinions on. It is also important to keep an eye on business surveys from the major economies to see whether US inflationary pressures continue to cool off and whether Europe is already in recession. 

Key Data to watch on the Economic Calendar this week

Monday, 21 November

  • EUR: German PPI (OCT) 
  • NZD: Trade Balance (OCT) 

Tuesday, 22 November

  • AUD: RBA Gov Lowe Speech 
  • CAD: Retail Sales (SEP) 
  • USD: Richmond Fed Manufacturing Index (NOV) 
  • AUD: Flash Manufacturing PMI 
  • NZD: RBNZ Interest Rate Decision 

Wednesday, 23 November

  • EUR: French Flash Services PMI 
  • EUR: German Flash Manufacturing PMI 
  • GBP: Flash Manufacturing PMI 
  • USD: Durable Goods Orders (OCT) 
  • USD: New Home Sales (OCT) 
  • USD: FOMC Minutes

Thursday, 24 November

  • EUR: German Ifo Business Climate 
  • EUR: ECB Monetary Policy Meeting Accounts 
  • NZD: Retail Sales (Q3) 

Friday, 25 November

  • EUR: German GfK Consumer Confidence (DEC) 
  • EUR: German GDP Growth Rate Final (Q3) 

USD — Is the dollar losing its shine?

As traders unwound bets that the Fed would raise interest rates beyond 5%, US inflation signs were seen as a heavy blow to the US dollar lately. In spite of this, the sharp changes in foreign exchange seem to be an overreaction, largely as a result of one-sided positions in long dollar bets.  

To put it simply, the Fed’s story hasn’t changed enough to justify such dramatic actions. Although the dollar trades like the inflation war have ended, Fed pricing and US yields indicate there has been only a small victory. There is still nearly four times its target level of inflation, the labor market is doing well, and consumption has not yet slowed down.  

Forex Weekly Market Outlook

In other words, it is too early to trade a Fed pivot at this time. Even though inflation has likely peaked, there is no way of knowing how quickly it will fall. In spite of their commitment to stop raising interest rates, Federal Reserve officials have insisted that they will keep them high until they are certain inflation has been reduced. 

With the November S&P Global business surveys, markets will be able to gain an insight into the inflationary pressures and the general state of the US economy. It has been reported recently that inflationary forces are retreating, but this is primarily due to an overall decline in demand.  

On Wednesday, the minutes of the latest FOMC meeting will be published. Despite the fact that this meeting took place before the bombshell inflation report, we’ve heard from almost every FOMC official since then, but markets still find a way to react to it. As a result of the message, the dollar may see a small boost, as it will likely be one of ‘determination’. 

As a whole, the dollar is at a crossroads. Despite the fact that most of the factors that fueled this rally have diminished, with inflation cooling off and the Federal Reserve shifting into a lower gear, it is still too soon to predict a reversal of the trend.  

Weekly Market Outlook

Although other major currencies have been improving recently, for instance, European energy prices dropping quickly, most foreign economies are likely to suffer recessions before America does. It is therefore likely that the dollar rally is in its final chapters. However, it may have one more ‘last hurrah’ to enjoy. 

NZD — RBNZ rate decision on Wednesday

The Reserve Bank of New Zealand will conclude its meeting early on Wednesday. There is currently a split between market participants as to whether rates will be raised by 50 or 75 basis points. The price is set almost like a coin toss, with a slight bias toward a smaller move. The RBNZ has not raised rates by 75 basis points so far, and other central banks, like the RBA, have slowed down tightening paces lately. There is a possibility, however, that that was a miscalculation this time.  

Forex News Updates

Recent data releases have suggested the economy is running much hotter than policymakers anticipated since the RBNZ last met. During the third quarter, inflation far exceeded the central bank’s forecasts, while the job market soared, with unemployment at record lows and labor force participation reaching new highs. Inflationary pressures are becoming entrenched according to RBNZ’s own 2-year inflation expectations metric. In addition, wage growth accelerated. Risks are also present. As a result of the sharp slowdown in China, house prices have fallen more than 10% from last year. 

Forex Market Outlook

However, the balance of evidence suggests that a 75-bps move would be the prudent move, giving the Kiwi a temporary boost. The currency will take a hit if it is a 50 bps move instead, but its losses will be limited if it is accompanied by ultra-hawkish commentary.

Eurozone and British PMIs

There will be a great deal of attention on Wednesday as the latest PMI business surveys are released for the Eurozone and the United Kingdom. These indices are forecast to decline again in the near future, which would lend credence to concerns that both economies are either in recession or on the verge of becoming one. Despite clear signs that growth is slumping, markets still expect the ECB to hike rates by 75bps next month despite double-digit inflation. According to the latest projections from the European Commission, the economy has already begun to contract this quarter.   

Weekly Market Outlook,Inflation Market Analysis

This recession might not be as brutal as initially expected given the sharp decline in energy prices, which is encouraging for the euro, but not game changing. In order for the rally to be sustainable, there must be signs that growth is improving or good news from Ukraine, neither of which is on the table at the moment. The outlook for sterling is even bleaker. According to both the government and the BoE, the latest austerity budget will likely deepen the recession. 

Weekly Market Outlook,Inflation Market Analysis

The pound is exposed to global risk sentiment due to the nation’s twin deficits that still require funding. In this case, equity valuations are stretched, and earnings estimates remain overly optimistic, making it a toxic cocktail.

Last but not least, the forward-looking Tokyo CPIs will be released on Friday, and they will be crucial to investors’ decisions on the Bank of Japan’s policy next month.

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