Inflation and interest rate data to dominate markets this week.
After a quiet data week last week, we look ahead to key data points across the UK, EU and US will provide market volatility across the three major currencies. Although a slow start data wise on Monday, the remainder of the week is stacked full of data.
EUR – Markets have brought down expectations of a 25bps rate hike on some signs of easing in inflation, and a marked loss of momentum for the already fragile Eurozone economy. Futures contracts indicate there is only about a 40% chance the ECB will opt to raise rates this week, and roughly a 67% chance it will hike rates again this year. Headline inflation has fallen from a peak of 10.6% last October to 5.3% in August, but the core rate has proven to be quite sticky. The market is underestimating the chances that the ECB will deliver a final 25bps rate hike this week, bringing the deposit rate up to 4%.
GBP -In the UK this week we have labour market and GDP data for July. Conditions in the labour have slowed but remain tight overall, leading to continued upward momentum in average earnings. For UK GDP, major revisions to the data show the UK economy is about 1.8% larger than previously estimated. A 0.2% monthly fall in GDP is penciled in for July, after a rise of 0.5% m/m in June.
USD – On Wednesday we have US CPI figures with previous y/y figure printing 3.2%. Markets will be watching closely for the inflation figure this week to get an indication as to how the Fed will move forward with the next interest rate decision. Markets believe the Fed will pause at the next meeting although a 25 bps rate hike is still on the cards. We also have retail sales out of the US with expectations of a drop across the board.
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