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The Eurozone and Japan reported significant contraction in GDP in Q2, reflecting the devastating impact of Corvid-19. The US dollar, which has sagged in recent weeks, recorded broad gains, as the greenback appears to have found some traction. Central banks will be in the spotlight this week, as the Federal Reserve, Bank of England and the Bank of Japan will make rate announcements.
Eurozone GDP for Q2 was revised to -11.8%, up from the earlier reading of -12.1%. The ECB maintained interest rate levels at its policy meeting and sounded cautiously optimistic about the economy. In a follow-up press conference, ECB President Christine Lagarde said she was not concerned about the high value of the euro.
In the UK, July GDP came in at 6.6%, which marked a third straight gain for the monthly GDP release. However, Brexit tensions are again spilling over and the pound dropped more than 3 percent last week. The British government has published a bill to which allows the UK to “disapply” parts of the withdrawal agreement it signed with the EU in January. Predictably, the EU was upset and has demanded that the bill be withdrawn.
Japan’s economy contracted by 7.9% in Q2, revised upwards from -8.1%. This marked a third straight contraction in GBP, as the country struggles with a recession.
As expected, the Bank of Canada held rates at 0.25%. The bank reiterated that it would not raise rates until inflation remained sustainable at 2 percent. Analysts don’t expect that goal to be reached before 2023, so Canada’s interest rates will stay close to zero for the foreseeable future.
In the US, unemployment claims were worse than expected. The indicator was almost unchanged at 884 thousand, higher than the estimate of 838 thousand. Inflation remained weak, as consumer inflation slowed in August. Both the headline and core readings reading dropped from 0.6% to 0.4%. Still, both releases beat their estimates.
  1. Reserve Bank of Australia Monetary Policy Meeting Minutes: Tuesday, 1:30. The minutes will provide details of the RBA policy meeting earlier this month. At the meeting, the RBA maintained rates at 0.25% and was dovish in tone, noting that the economic recovery is expected to be “uneven and bumpy”.  
  2. UK Employment Report: Tuesday, 6:00. Unemployment rolls jumped 94.4 thousand in July, after a decline of 28.1 thousand beforehand. We now await the August release. Wage growth fell 1.2% in June and another decline of 1.3% is expected in July. The unemployment rate, which has been pegged at 3.9% for four straight months, is projected to climb to 4.1%.
  3. UK Inflation: Wednesday, 6:00.   CPI accelerated to 1.0% in July, up from 0.6% beforehand. Investors are braced for a weak gain of 0.1% in August.
  4. US Retail Sales: Wednesday, 12:30. Retail sales showed a gain of 1.2% in July, and a gain of 1.1% is projected for August.
  5. US Federal Reserve Rate Decision: Wednesday, 18:00. The Fed is expected to maintain rates close to zero, where they have been pegged since March. Investors will be interested in the Fed’s view of the economic recovery – a hawkish take could boost the US dollar.
  6. Bank of Japan Rate Decision: Thursday, Tentative. The BoJ is not expected to make any changes to its accommodative monetary stance. A dovish tone to the rate statement could sour sentiment towards USD/JPY.
  7. Australia Employment Report: Thursday, 1:30. Australia created 114.7 thousand jobs in July, crushing the estimate of 30.0 thousand. However, analysts are braced for a loss of 40 thousand jobs in the August report. The unemployment rate has moved higher for five successive months, rising from 7.4% to 7.5% in July. The upswing in unemployment is expected to continue, with an August estimate of 7.7%.
  8. Eurozone Final CPI: Thursday, 9:00. Inflation declined by 0.2% in August, as deflation remains a growing concern for ECB policymakers. Core CPI was stronger, with a reading of 0.4%. The final read will likely confirm the first one.
  9. Bank of England Rate Decision: Thursday, 11:00. The BoE shaved rates to just 0.10% in March, in an effort to stabilize the economy in the wake of the Covid-19 pandemic. Policymakers are expected to maintain rates as well as the QE of GBP 745 billion at the upcoming meeting.
  • All times are GMT

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