Upcoming Week: Central Bank Policy and Inflation to Shape Short-Term Forex Patterns

Highlights

• The likelihood of a first-half 2024 Fed interest rate reduction is linked to US consumer confidence and inflation.
• Market predictions for an April ECB interest rate reduction depend on member states' decisions and Eurozone inflation data.
• Attention will also be on China, the Bank of Japan, the RBA, and the RBNZ.  

The US Dollar

The beginning of the week sees attention on US housing sector data, particularly new home sales and building permits, which could concern investors if unexpectedly low, given economists view this sector as a gauge of the overall US economy. 

Tuesday brings consumer confidence figures for February, potentially indicating consumer spending and inflation trends. Additionally, durable goods orders and house price data will be noted, though the CB Consumer Confidence Index is deemed more influential.

Wednesday's focus shifts to Q4 GDP numbers, with any revisions to previous estimates likely to shape economic perceptions, although they may not sway the Fed's rate trajectory.

Thursday brings key indicators like the Core PCE Price Index and personal income/spending data, influencing speculation about a potential Fed rate cut in the first half of 2024. Jobless claims and the Chicago PMI are also on the docket but are expected to take a back seat to inflation and personal income/spending statistics.

The week concludes with the ISM Manufacturing and Michigan Consumer Sentiment figures, while speeches from FOMC members Bostic, Williams, Mester, and Daly will add insight into the Fed's stance on inflation and rate adjustments.

The EUR

The EUR/USD pair will be in focus as German consumer confidence numbers for March are released on Tuesday, with any unexpected declines suggesting prolonged economic challenges. Thursday highlights French and German economic data, particularly Q4 GDP figures for France and retail sales/unemployment data for Germany, alongside preliminary inflation data for both countries, which could impact the EUR/USD exchange rate. Friday brings manufacturing PMI figures for Italy and the Eurozone, with attention on the CPI Report as the market's primary concern. ECB commentary from President Lagarde and Executive Board member McCaul will also be scrutinized for insights into ECB policy.

The Pound

Thursday's focus centers on UK house prices, with any unexpected drops likely to affect consumer confidence and spending plans, already dampened by inflation and interest rate concerns. Friday brings finalized manufacturing PMI numbers, though Bank of England speeches, particularly from Governor Bailey and Chief Economist Pill, are expected to drive market sentiment regarding inflation and potential interest rate adjustments.

The Loonie

Thursday brings Q4 GDP figures from Canada, which may influence demand for the Loonie, especially if below expectations, potentially increasing speculation about a Bank of Canada rate cut. Other data points include wholesale sales and current account figures, but the GDP report is expected to have the most significant impact. Additionally, private sector PMI numbers from China on Friday could shape commodity currency trends.

The Australian Dollar

Wednesday's focus is on construction data and Australian retail sales figures for January, which could impact sentiment toward the RBA's rate path, especially following recent interest rate discussions. Private capital expenditure numbers are also noteworthy, but the retail sales report is anticipated to drive RBA sentiment. Chinese private sector PMIs and stimulus discussions are additional factors that could influence the Aussie dollar.

The Kiwi Dollar

The RBNZ's cash rate decision on Wednesday is a key event, with the Rate Statement and Press Conference requiring attention for any unexpected policy shifts. Friday brings Chinese private sector PMI numbers, potentially affecting riskier assets and commodity currencies, including the Kiwi dollar.

The Japanese Yen

Tuesday's release of national inflation figures is significant for the Japanese Yen, potentially impacting expectations regarding the Bank of Japan's stance on negative rates. Thursday's Bank of Japan inflation and industrial production data are also critical, with any indications of economic weakness possibly influencing the central bank's policy decisions. Market attention will also be on Bank of Japan commentary regarding the timeline for pivoting from negative rates.

Out of China

Friday's private sector PMI numbers are notable, particularly the Caixin Manufacturing PMI, which could drive demand for riskier assets, along with any stimulus discussions from Beijing.