26/07/2024
Written by: Ian Morley
Summary:
Yesterday’s standout was the depreciation of the Japanese yen (JPY) following remarks from the deputy governor of the Bank of Japan (BoJ), signalling a cautious approach to future rate hikes post-negative rates. The remaining G10 currencies experienced subdued movement. Central bank officials, such as Fed’s Barkin and ECB’s Holzmann, resisted market expectations of rate cuts. Meanwhile, the Reserve Bank of New Zealand hinted at potential interest rate hikes due to anticipated labour market strength, resulting in a 0.5% decline in GBPNZD overnight.
Speeches:
ECB officials Nagel and Cipollone, focusing on the Euro (EUR).
Our analysis:
Today’s focal point lies in the annual revisions of the US inflation benchmark, which the Fed will scrutinize closely. A downward revision could weaken the US dollar (USD), while an upward revision would counter the market’s disinflation expectations, potentially strengthening the USD. Additionally, January’s inflation figures, set for release next Tuesday, are anticipated to reflect decreased inflation across the board.
The upcoming week promises a flurry of activity from a UK perspective, with the release of various economic indicators including jobs data (Tue), inflation (Wed), GDP (Thur), and retail sales (Fri). Ahead of these releases, there has been heightened interest among clients in hedging their positions, particularly concerning GBPEUR, capitalizing on recent gains for the British pound (GBP).
The focal event for the upcoming week will undoubtedly be the US inflation data, pivotal in determining whether the trend of disinflation is decelerating. Present forecasts indicate a continued easing in both inflation and core inflation, potentially strengthening expectations for an imminent rate cut by the Federal Reserve (Fed) and consequently weighing on the US dollar (USD). Therefore, a higher-than-anticipated inflation figure would present a surprising outcome, likely resulting in the USD continuing its trend observed in 2023.