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The USD came out on top after a blockbuster Non-Farm Payrolls report that cast doubts over the Fed’s potential rate cut. Fed Chair Jerome Powell may provide some clarity in no less than three public appearances this week. Here the highlights for the next week.

The US economy gained 224K jobs in June, not only better than initially expected but also exceeded the lower projections that were a result of the disappointing ADP NFP and the ISM Non-Manufacturing PMI. Moreover, the greenback enjoyed the trade truce that the US and China agreed to, even though the road to a full trade deal is extended. With reduced trade tensions, the Fed may refrain from an entire cycle of rate cuts. Elsewhere, the Reserve Bank of Australia cut its interest rate for the second time in a row as expected. Purchasing managers’ indices in the UK pointed to a growing chance of a recession, and ECB members reiterated the need for more monetary stimulus. The race to the bottom continues.

  1. Fed Chair Jerome Powell speaks Tuesday at 12:45 in Boston, Wednesday at 14:00 on Capitol Hill, and again on the Hill on Thursday. The world’s most powerful central banker will have the chance to respond to both the upbeat jobs report and also the trade truce. Markets will want to know if he intends to cut interest rates in July, by how much, and if this is the beginning of a loosening cycle or not. While some Fed officials have signaled only a one-off cut as an “insurance policy” against a downturn, bond markets are foreseeing a series of rate cuts that may extend to as much as 100 basis points. Powell will also touch on the other Fed’s mandate – inflation – which remains subdued into the second quarter. He previously said that first quarter weakness was transitory. Comments on the global economy and the Federal Reserve’s independence will also be of interest. President Donald Trump uses almost every public appearance to criticize the Fed.
  2. UK GDP: Wednesday, 8:30. The UK economy grew quickly in March thanks to stockpiling ahead of the original Brexit data of March 29th. In April, the economy shrank by 0.4% in what was seen as a “payback month.” The data for May may be clean of such distortions. An increase of 0.3% is on the cards. If British growth falls short of expectations, the pound may fall on growing fears of a recession.
  3. Canadian rate decision: Wednesday, 14:00. The Bank of Canada has shifted its policy towards a neutral one after maintaining a hawkish bias for a long time. The BOC does not intend to raise rates – at least for now. The Ottawa based institution is projected to leave the rate unchanged at 1.75%. Governor Stephen Poloz and his colleagues have a dilemma. On the one hand, the economy is doing well with rising employment, wages, and inflation. On the other hand, the Federal Reserve is about to cut interest rates. The move by Canada’s southern neighbor probably prevents the BOC from hinting a rate hike.
  4. FOMC Meeting Minutes: Wednesday, 18:00. Just after Powell finishes his first session on Capitol Hill, the Fed releases its meeting minutes from the June decision. Back then, the central bank officially opened the door to slashing rates. While Powell’s testimony is more up to date, it is essential to remember that the meeting minutes document is revised until the very last minute. The central bank is aware of the market impact. The same themes are of interest: inflation, growth, employment, trade, and interest rates.
  5. US inflation: Thursday, 12:30. In between Powell’s two appearances, the Fed will receive fresh input on inflation from the Consumer Price Index (CPI) release. Core CPI has slowed down to 2% in May, adding to speculation of a rate cut. The data for June may repeat the same figure. While 2% is the bank’s target, the Fed eyes the Core PCE figure, which lags in its publication and its value and stands at only 1.6%. Nevertheless, any change in US inflation will rock the boat.

*All times are GMT

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