Forex Week in Focus, July 11: Bank of Canada, Bank of England meeting, China data

The following article is based on research by Marshall Gittler, Head of Investment Research for FXPRIMUS.



Usually the week following the nonfarm payrolls is rather quiet, but this week we have several important events that are likely to move the FX market. Britain is of course at the center of the market, as is usual nowadays:  the Bank of England Monetary Policy Committee (MPC) decision on Thursday is the week’s key event. The Bank of Canada also decides on rates on Wednesday. There are also a large number of important US indicators, especially on Friday, and almost half the FOMC members speak during the week. Finally, we get a slew of Chinese data, including the crucial GDP figure.

For the BoE, economists are pretty evenly divided between whether the BoE cuts rates at this meeting or the next one in August, when it will issue its quarterly Inflation Report and the staff will produce the first set of post-Brexit forecasts. Investors will also want to know if they are considering any additional purchases of UK government bonds. I expect that they’ll wait till August before making any changes in rates or bond purchases. That could cause the pound to firm up – temporarily, at least.


The Bank of Canada is unanimously expected to keep rates stable, with the market seeing only a 25% chance that they cut before the end of the year. I expect them to say once again that “the risks to the Bank’s inflation projection remain roughly balanced” and to keep rates steady. That would be no change and therefore probably wouldn’t impact CAD much either way.

For the US, the key question is whether Friday’s nonfarm payrolls have altered the Fed’s perception of the labor market. The Fed funds futures basically said no, no change was likely. Personally, I think people are being too pessimistic. In that respect, today’s Labor Market Conditions Index (LMCI) and Tuesday’s Job Openings and Labor Turnover Survey (JOLTS) report, while not market-moving, may be important for Fed members in making up their minds. I would expect the Fed presidents talking this week to continue to talk up the possibility of a rate hike this year, which would probably support the USD.


As for the US data, the key day is Friday, when retail sales, CPI, Empire State manufacturing index, industrial production and the U of Michigan consumer sentiment survey are all announced within the space of two hours. Overall the data is expected to be lackluster and may just confirm that Q2 growth is likely to be closer to the New York Fed’s 2.1% forecast than the Atlanta Fed’s 2.4% GDPNow forecast. Not great, but better than most other places and probably enough to keep USD supported.

For Europe, politics will probably be the main concern rather than the data. In any event, industrial production (Wednesday) is the only major Eurozone indicator. That’s expected to be weak, which could add to the euro’s struggles.

Finally, China will be in focus as it announces CPI, trade, industrial production, retail sales, fixed asset investment and the all-important GDP figures. The data are expected to continue to show that the Chinese economy is gradually slowing. AUD and NZD, good performers recently, could suffer as a result.


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