A relatively quiet week with no meetings for central banks. However, some big data are scheduled to be released this week with the US CPI inflation data on top. In the UK, the major data release will be the preliminary estimate of Q2 GDP numbers, alongside business investment, trade balance, manufacturing and construction output. China as well will be publishing inflation data for July, as the market expects a softer increase in consumer prices and a steady producer price inflation, that is likely to remain close to May’s near 13-year high.
USD awaits Inflation Numbers
On Tuesday, US inflation data for July will be released. Market expectations indicate a slight fall back in inflationary pressures. Consumer price index, the leading inflation gauge, is expected to rise 0.5% in July, after 0.9% monthly rise in June. On an annual basis, the CPI index is expected to slightly retreat from 5.4%, May’s highest level since 2008, to 5.3%.
Core CPI, that excludes food and energy prices, is anticipated to rise 0.4% monthly and 4.3% annually versus previous readings at 0.9% and 4.5% respectively.
Inflation data are now playing a vital role in shaping the policy path for the Federal Reserve who keep insisting that inflationary pressures are temporary. Now that inflation is stabilizing above 5% well above the Federal Reserve’s target of about 2%, market participants are watching closely to see how persistent the pressures are, especially before September’s meeting as markets are pricing possible tapering decisions.
Expected Recovery for the British Economy
The UK will be publishing the preliminary estimate of Q2 GDP growth. The British economy is expected to grow 4.8% between April and June, recovering from a 1.6% contraction in the previous quarter.
Annual GDP growth is expected to jump to 22.1% in June 2021, versus the previous retraction of 6.1%.
The predictable recovery is backed by the rapid pace of COVID-19 vaccinations which allowed the country to pursue its re-opening efforts, boosting consumption. Other data will be watched as well to measure how sustainable the growth is, such as business investment, manufacturing, and construction output.
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.
However, officials signaled some modest tightening of monetary policy over the next two years was likely to be necessary if the economy continues to improve. The central bank also said it would start reducing its stock of bonds when its policy rate reaches 0.5% by not reinvesting proceeds and it would start considering selling stock of purchased assets when the rate reaches at least 1%.
Markets are expected a possible hike in interest rates by 2022.
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