The Week Ahead: The Fed, The BoE, and the ECB in the Spotlight

Highlights

• US CPI Report to test the markets before the Wednesday Fed interest rate decision.
• On Thursday, the Bank of England and the ECB will deliver interest rate decisions.
• Economic indicators from China will impact market risk sentiment on Friday.

The US Dollar

Consumer price inflation figures (Tues) kickstart the week for the US dollar. After the surprise Jobs Report, sticky inflation could push the Fed to delay discussions on rate cuts.

On Wednesday, producer price numbers for November also need consideration. An upward trend in producer prices could signal a pickup in demand and demand-driven consumer price inflationary pressures.

The respective inflation reports and the US Jobs Report will influence the Fed interest rate trajectory.

On Wednesday, the Fed will deliver its interest rate decision, rate statement, economic projections, and press conference. Forward guidance on the timing of a Fed rate cut will need consideration. Fed Chair Powell could surprise the markets and discuss a further rate hike.

Retail sales and jobless claims will move the dial on Thursday. A pickup in consumer spending could fuel demand-driven inflation, forcing the Fed to maintain a hawkish rate path.

Preliminary December private sector PMIs, industrial production, and NY Empire State Manufacturing numbers wrap up the week. The Services PMI will likely have more influence on Friday. Accounting for more than 70% of the US economy, the sector is also the driving force behind inflation.

The EUR

On Tuesday, ZEW Economic Sentiment numbers for Germany and the Eurozone will influence the EUR/USD. Recent economic indicators have sent mixed signals, giving the report greater weight. German factory orders, industrial production, and trade figures from Germany contrasted with better-than-expected survey-based data.

Eurozone industrial production figures (Wed) warrant consideration before the ECB monetary policy decision (Thurs). A weak macroeconomic backdrop and softer euro area inflation have fueled bets on an H1 2024 ECB rate cut. Forward guidance on inflation, the economy, and interest rates will move the dial.

On Friday, inflation numbers from France, private sector PMIs, Eurozone wage growth, and trade data wrap up a busy week. Inflation, Services PMIs, and wage growth will likely influence buyer appetite for the EUR/USD.

The Pound

Average earnings and the unemployment rate (Tues) will move the Pound. Wage growth remains a bugbear for the Bank of England. Steady numbers could support the Bank of England’s dismissal of interest rate cut discussions.

On Wednesday, the GDP Report will also warrant consideration. A resilient UK economy would allow the BoE to maintain interest rates at current levels for longer.

The BoE will deliver its final monetary policy decision of 2023 on Thursday. Forward guidance on inflation, the economic outlook, and the likely timing of rate cuts will move the dial. We also expect the vote split to draw interest.

Preliminary private sector PMIs for December will be in focus on Friday. The services sector accounts for over 70% of the UK economy and will have more impact. Notably, the services sector is also a contributor to inflation. A pickup in service sector activity could give the BoE more reason to maintain a hawkish rate path.

The Loonie

Investors must wait until Friday for stats to influence the Loonie. Housing starts and wholesale sales figures will garner investor interest.

However, Bank of Canada Governor Tiff Macklem will likely have more impact. Last week, the BoC highlighted progress on bringing inflation to target. A deviation from the script would move the dial.

From elsewhere, economic indicators from China could influence buyer appetite for the Canadian dollar.

The Australian Dollar

On Tuesday, business confidence numbers for November will influence the appetite for the Aussie dollar.

However, employment numbers on Thursday will have more impact. An upward trend in hiring could fuel consumer spending and ease concerns about a recession. However, consumer spending fuels demand-driven inflation and could force the RBA to keep rates higher for longer.

From elsewhere, economic indicators from China also need consideration.

The Kiwi Dollar

Electronic card retail sales numbers will draw investor interest on Tuesday. However, Q3 GDP numbers (Thurs) will also need consideration. Weaker-than-expected figures would impact buyer appetite for the Kiwi dollar.

On Friday, Business PMI numbers for November warrant investor consideration.

While the numbers from NZ will influence, economic indicators from China could have more impact on the Kiwi dollar.

The Japanese Yen

Tankan survey-based figures (Wed) will influence buyer demand for the Japanese Yen. Better-than-expected numbers would support bets on the Bank of Japan pivoting from negative rates.

However, preliminary private sector PMIs for December also warrant consideration. Weaker-than-expected numbers could influence the timing of a BoJ pivot.

Beyond the numbers, investors must monitor BoJ commentary. Recent commentary has sent mixed signals about exiting negative rates.

Out of China

Industrial production, retail sales, fixed asset investment, and unemployment figures (Fri) will impact market risk sentiment.

Softer numbers could raise further concerns about the Chinese economy. Recent trade figures signaled a weak demand environment.

Away from the economic calendar, stimulus chatter from Beijing would impact market risk sentiment.