10.07.23 - 14.07.23
Results of the previous week
The latest US inflation data showed a slight ease in price pressure on consumers and producers. The indicator's movement is convincing markets that the US Fed's rate hike cycle may soon come to a halt, which will support US stocks. For example, the S&P 500 is showing the best closing results since April 2022.
However, in the currency market, expectations that the Fed may slow down or signal a possible end to interest rate hikes at one of its upcoming meetings following the release of inflation data are provoking the opposite reaction. The greenback recorded losses against the British pound, euro and yen, and it's also facing pressure from commodity currencies.
Brent (BRN) oil prices have broken the upper boundary of the $71.90 to $78.00 per barrel price range it's in, reaching as high as $81.70. Potential supply constraints (according to OPEC+ data, major oil producers are complying with the agreement to cut production by 250 mln barrels) support the commodity's price.
Key events of the current week
The US. Retail sales
Domestic consumption plays a massive role in the US economy. The retail sales sector has also somewhat stabilised, given lower price pressure. The indicator has halted its decline and is expected to see 0.3% growth in the reporting period, just like a month prior. It's an overall positive sign, as a stable economy will allow the US Fed to keep up with the monetary policy stance it has set and continue to hike its key interest rate or, at least, keep it at the current level for a while. This will support the dollar. If the report meets the expectations, USD/JPY could recover to around 140.00.
The UK. Inflation rate
Despite all the efforts taken by the Bank of England, price pressure in the UK is way higher than the regulator's target level. This puts the UK central bank in a problematic situation. On the one hand, it needs to continue tightening its monetary policy to curb the rise of price pressures. On the other hand, the economy is showing signs of a cooldown, which also requires measures from the regulator. If inflation remains high, the markets will expect a further rate hike, which would support the British pound. In such a scenario, GBP/USD will continue moving toward 1.3200.
The US. New jobless claims
The situation in the US labour market is still quite stable. Unemployment is steady at multi-year lows, with no abrupt increase in jobless claims observed. The US Fed was recently focused primarily on combatting inflation. However, it also managed to curb price pressure growth. That's why macroeconomic indicators are once again at the forefront of monetary policy decisions, including labour market data. The Fed made it clear that it's not giving up on rate hikes. The positive data strengthen expectations of at least one more rate hike. This supports the dollar's strengthening against its major competitors. In this scenario, the EUR/USD pair could drop to 1.1060.