The US dollar fell for a fourth consecutive week. Will Bernanke turn the fate of the greenback? The G8 Meetings, Inflation data in the US and the UK and of couse the FOMC meeting are among the main events coming our way. Here is an outlook on the highlights of this week.
Towards the all-important Fed decision, US data has been mixed: jobless claims came out better than expected, and so did retail sales. However, consumer sentiment fell from the highs. The re-strengthening of the yen, together with the fall of Japanese stocks is certainly worrying for Japanese policymakers. An intervention cannot be ruled out. Europe is muddling along. No news is good news for the euro, for now.
- A mild hawkish change? 4 scenarios for the Fed decision – FOMC preview
- G8 Meetings: Sun-Mon. the G8 summit is meeting in Ireland for two days. Leaders from Canada, France, Germany, Italy, Japan, Russia, USA and UK will discuss ways in which we can support the development of open economies, open governments and open societies to unleash the power of the private sector, advancing trade, ensuring tax compliance and promoting greater transparency. The UK is the head of the G8 thus year. Japan’s policies might gain some attention.
- UK inflation data: Tuesday, 8:30. Consumer price inflation dropped sharply in April to 2.4% from 2.8% in March, hitting its lowest level since September last year. The steepest fall occurred in petrol. The overall CPI yearly rate is below the Bank of England’s forecast in its May Inflation Report and may prompt monetary easing measures. Headline CPI is expected to rise by 2.6% annually.
- German ZEW Economic Sentiment: Tuesday, 9:00. The ZEW Indicator of Economic Sentiment for Germany increased 0.1% in May following a sharp fall in April but lower than the 39.5 anticipated by analysts. ZEW Indicator remained relatively low due to the continuous weakness in the Euro-zone. A small rise to 38.2 points is expected now., The all-European number is likely to tick up from 27.6 to 29.4 points.
- US Building Permits: Tuesday, 12:30. The number of residential building permits issued in April edged up 14.3% to a seasonally adjusted 1.017 million, beating expectations for a 3.8% increase to 0.973 million units. This rise was followed by 0.890 million units in March. A slide below 1 million, to 0.98 is predicted now.
- US inflation data: Tuesday, 12:30. The Consumer Price Index fell 0.4% in April, a larger decline than the 0.3% drop expected, caused by a sharp decline in gasoline prices. Meanwhile core CPI increased by a mere 0.1%, shy of forecast. The change in the core CPI in April nearly rounded down to 0.0%, as the 12-month change fell two-tenths to 1.7%. PPI surprised to the upside, so a rise in CPI will not be a huge surprise now. A rise of 0.2% is expected in both headline and core CPIs.
- US rate decision: Wednesday, 18:00, press conference begins at 18:30. The Fed is unlikely to make any policy changes in June, but will probably alter the text to the hawksih side: closing the door on the option of increasing bond buys, and leaving only the option of reducing them (tapering) in one of the next few meetings.
The bottom line of recent US data is the same as it was in the past few years: steady, slow and somewhat frustrating growth. The jobs report for May was within the average for recent months: not worse and not better, but still showing a drop in unemployment. The Fed could announce a tapering in bond buys in November.A big hint about upcoming tapering will boost the dollar, while a very subtle hawkish change in the text will probably maintain the status quo. No change in the text will weigh on the greenback
Quarterly forecasts from the March meeting of the Federal Open market Committee reveal the Committee downgraded its previous of growth and inflation forecast, but were more optimistic regarding unemployment and current economic conditions.
- NZ GDP: Wednesday, 22:45. New Zealand’s GDP figure for the fourth quarter of 2012 surprised with a 1.5% leap and 3.0% yearly growth. The reading was well above the estimated 0.9% growth rate followed a 0.2% increase in the third quarter. However the long term growth prospects remain bleak due to the weakening northern part of the country. A growth rate of 0.5% is expected for Q1 2013.
- Swiss Rate decision: Thursday, 7:30. The Central Bank kept the three-month Libor target rate at the historically-low range of 0% to 0.25% in line with market forecast. The Swiss National Bank also maintained its intention to facilitate the 1.20 CHF per EUR cap established in September 2011. The Central Bank stated inflation was lower than expected in the fourth quarter of 2012. In addition, the Bank argued that “downside risks to the Swiss economy remain considerable” and that “there is a risk that tensions in the Euro area will increase again”.
- US Unemployment Claims: Thursday, 12:30. The most recent weekly report was encouraging: a drop to 334K, back to the lower levels rather than the higher ones. A rise back to 345K is expected now. The markets have become more sensitive to this figure, due to the fact that Fed focuses on jobs.
- US Existing Home Sales: Thursday, 14:00. Existing home sales edged up 0.6% in April to an annual rate of 4.97 million units, the highest level since November 2009 stressing the growth in the housing sector. Sales were 9.7% higher than in the same period last year. Despite the relative current slowdown in the US economy, the housing market continues to grow. Sales are predicted to edge up to 5.01 million (annualized).
- US Philly Fed Manufacturing Index: Thursday, 14:00. Factory activity in the U.S. mid-Atlantic region weakened in May reaching minus 5.2 following 1.3 in April, amid a drop in new orders. The employment index fell to a three-year low, indicating growth in the second quarter is slowing down. Economists expected a reading of 2.5. Nevertheless, the outlook for the coming six months rose to 32.3 from 19.5, indicating the slowdown is temporary. A rise to -0.8 is predicted now, still in negative territory.
*All times are GMT.
That’s it for the major events this week. Stay tuned for coverage on specific currencies
- For EUR/USD, check out the Euro to Dollar forecast.
- For the Japanese yen, read the USD/JPY forecast.
- For GBP/USD (cable), look into the British Pound forecast.
- For the Australian dollar (Aussie), check out the AUD to USD forecast.
- For USD/CAD (loonie), check out the Canadian dollar