Weekly Market Outlook — USD, EUR Inflation Data and UK GDP figures to watch!

Weekly Market Outlook: US Inflation and UK GDP to Watch

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Weekly Market Outlook: This week will be another critical one for global markets. The UK will release its Q2 GDP update and industrial production figures this week along with inflation data from Germany, France, and Italy. A key event will be the U.S. CPI report, which will show whether inflation has begun to moderate. According to business surveys and commodity prices, a retracement in the price of the almighty dollar is in the offing. 

USD- Fed may tighten further as inflation rises

Inflation is the hot topic of this week in the US. Last week was a little of a reality check for investors overexcited about the Fed‘s “dovish pivot” and turning a blind eye to the data and what they were saying. After some Fed members pushed back on a Fed pivot, investors will be watching inflation closely to see if inflation continues to peak. There might be some demand destruction for goods as the US economy slows down. 

Weekly Market Outlook
Weekly Market Outlook

Inflation data this week will provide insight into how prices have fared in the wake of the Fed’s tightening monetary policy. Assuming July’s inflation report shows a much slower rate of price pressure, expectations for the September FOMC meeting could swing further toward raising rates by 75 basis points. We’re expecting a 0.2% increase month-over-month, down from 1.3% last time. It is expected that the headline y/y reading will ease from 9.1% to 8.8%. 

There will also be a few Fed appearances during the week from Evans, Kashkari, and Daly that traders will be keeping their eyes on. Traders will be following the Fed’s policy decision closely to see how many members are positioning themselves for a slower pace of tightening. In addition to MBA mortgage applications, which have increased in recent weeks, sentiment data will also be closely watched this week. 

EUR — Inflation data for France, Italy, Germany & Spain

On the European front, this week is a little quiet, with final inflation data the only noteworthy announcement. A large number of European countries including France, Italy, Germany and Spain will release their consumer price inflation rates this week. We might still see elevated CPI readings in the upcoming release despite July’s PMI survey showing a general slowdown in input costs. 

Recent months have seen inflation rates in the Eurozone rise above target rates, which is a sign of a tightening of the economic climate. Despite this, the ECB has remained unwilling to tighten monetary policy rates due to fears of plunging the economy into a recession, which seems more and more probable. 

GBP — UK GDP in focus

Preliminary GDP growth data for the second quarter will be released on Friday in the United Kingdom. Despite raising interest rates by 50bps this week, the Bank of England projected a 0.2% contraction for this quarter. Although there was an increase in interest rates, the sterling suffered afterwards because the BoE’s message was gloomy. Starting in the fourth quarter of this year, economic forecasts predicted five straight quarters of negative GDP growth. 

Weekly Market Outlook
UK GDP growth

It was interpreted by markets as a sign that the tightening cycle might come to an end. The demand destruction caused by such a prolonged recession would probably suffice to curb inflation without requiring much higher rates. 

In the near future, how global risk sentiment evolves might be the most crucial element for the pound. In terms of interest rates, traders have a good idea of what the BoE will do for the remainder of the year – increase them, but in a gradual manner. There is less certainty about how the stock market will perform, a factor that is highly correlated with the sterling’s performance.

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