When the policymaker scales begin to tip
Muted growth, but Sterling climbs
Despite weaker data being released on Friday, the Pound to US Dollar exchange rate rallied on Friday to climb back above the 1.39 interbank level as risk appetite increased. The GBP/USD currency pair closed 0.6% higher than it began the week. Growth data released on Friday showed the annual figure had slipped to 24.6% in May, falling from a revised 27.4% and remaining below the expectations of 25.9%. The Bank of England will release its Financial Stability Report in the week ahead, followed later by inflation data and employment stats.
Recovery at risk
The Pound traded against the Euro within a 1.0% range last week, closing 0.37% higher than it began. In Europe, the economic recovery is at risk following the spread of the Delta Coronavirus variant, which has caused cases to soar and some of the travel industry to close. France and Germany have also issued warnings to their citizens regarding travel, advising against visiting Spain and Portugal. Today, the Eurogroup meeting will take place—a gathering of finance ministers of the Eurozone. One of the influential events in the week ahead will be the inflation rate data due out on Friday. German inflation stats will be out earlier in the week, as well as Eurozone industrial data.
When the policymaker scales begin to tip
Last week, the Federal Open Market Committee meeting minutes hit the market. The minutes showed officials could start tapering asset purchases sooner than expected if the economic recovery continues strongly. These debates will likely continue in the coming months, and markets will be keeping a close watch on developments to see when the policymaker scales will begin to tip, with more in favour of tapering. US inflation data will be released in the week ahead, with expectations for the core reading to climb from 3.8% to 4.0% in June. Retail Sales and Michigan Consumer Sentiment numbers will also be revealed towards the end of the week. Other developments that could impact the way the US Dollar trades include Federal Reserve Chief Jerome Powell's testimonies and the Fed's Beige Book release, which outlines current economic conditions.
AUD and NZD
Last week, the Pound closed 1.2% higher against the New Zealand Dollar and almost 1.0% higher against the Australian currency. In central bank news, the Reserve Bank of Australia opted to keep interest rates on hold at 0.1%. Governor Philip Lowe poured cold water on expectations for quicker interest rate hikes, asserting that even though the RBA would scale back its bond purchase programme, interest rates would remain at their record lows for a significant time to come.
Australia's Westpac Consumer Confidence data on Wednesday could be influential for the Aussie Dollar in the week ahead. Highly significant labour market data will follow on Thursday, expected to show another 30k people found work, while the unemployment rate is forecast to tip slightly lower to 5.0%. Meanwhile, in New Zealand, the most significant events will be the Reserve Bank of New Zealand's interest rate decision and inflation numbers. Central banks worldwide are in focus while markets try to determine when interest rates will begin to rise.
Last week, the Pound closed the week's trading 1.5% stronger versus the Canadian Dollar. Canadian Employment Change data showed more people entered the workforce than expected in June. While May had shown a contraction of -68K, June had been forecast to rebound with a figure of 195K. However, the ecostat beat predictions, coming in at 230.7K. The level of unemployment also showed a positive decrease from 8.2% to 7.8% but remained just a shade higher than the 7.7% expectation. The Loonie was little changed on the news, trading around 0.3% higher versus the US Dollar. The Canadian economy has recovered well, recouping almost all of the job losses it registered at the height of the pandemic last year. The most significant event for the Loonie in the week ahead will likely be the Bank of Canada's interest rate decision. Forecasts expect the current rate of 0.25% to remain but will be looking for clues in the monetary policy report released by the bank as to when hikes could occur.