As the US summer continues, a continuous stream of economic data has been shaping market dynamics. The robust economic indicators from the UK have added pressure on the Bank of England (BOE) to maintain its tightening stance. In this context, the upcoming Consumer Price Index (CPI) report is gaining heightened relevance. Furthermore, Canada's inflation report could signal a potential move by the Bank of Canada (BOC) if inflation persists, while various central bank minutes and Australian employment data add to the week's forex highlights.
Looking back to the August week 2 events, the US Consumer Price Index (CPI) showed slight softness, prompting a market implication of an 89% probability that the Federal Reserve will maintain its interest rates in September. However, with a core CPI rate of 4.7% year-on-year, inflation remains significantly above the Fed's target of 2%. Amidst these observations, strong economic data from the UK, including GDP, construction, manufacturing, and industrial production figures, defied expectations, suggesting that inflationary pressures could persist and keep driving the BOE's tightening strategy.
China's economic data continued to reflect a downward trend in Q3, with both imports and exports declining more rapidly than anticipated. Additionally, China's Consumer Price Index (CPI) experienced deflation for the first time since 2021. The government's commitment to economic stimulus, however, introduces an element of uncertainty, waiting for potential impacts to manifest in the data. Consequently, forex markets, such as USD/CNH, China A50, and others, remain sensitive to developments that could influence global growth prospects and oil prices.
The UK's inflation data has gained increased relevance following a strong economic performance, which exceeded expectations across various sectors. Contrary to previous hopes, core inflation in the UK hasn't peaked, indicating that inflationary pressures are likely to persist. Despite some speculation of a peak at 7.1%, the Bank of England's (BOE) 2% target remains a distant point, suggesting a prolonged period of disinflation. This new data could potentially result in building expectations for additional rate hikes by the BOE.
The Bank of Canada's (BOC) consistent rate hikes have led to expectations of further tightening, depending on inflation trends. The next inflation report holds significance as it could act as a proxy for the BOC's potential future actions. In Australia, the Reserve Bank's minutes and wage price index (WPI) could provide insights into their policy direction, alongside the upcoming employment report. Looking forward, strong employment data has been a cornerstone of the RBA's strategy, even as the delayed effects of monetary policy continue to play out. The potential impact on AUD and the ASX 200 looms large based on the employment data's trajectory.