In last week's analysis, we mentioned that there is room for the dollar's strength to grow in the market. In terms of the economic calendar, on Monday, the New York manufacturing index surprised the market and went from 10.8 to -31.8. However, the Philadelphia Fed's manufacturing index, which rose to -10.4 from -31.3 in May, recompensed it. On Tuesday, the retail sales index for April was published, which showed a monthly increase of 0.4% and was lower than the market consensus of 0.8%. However, the report's details were mainly positive as it revised and expanded on the data from the previous series. Also, the Unemployment Claims were released with a better-than-expected decrease. Overall, the released US data were strong.
But the new challenge that has become important in the market is the debt ceiling issue. Last week, the news indicated an agreement on the debt ceiling, which is why the dollar became strong and stocks grew as a risky asset, and gold decreased as a non-risky or safe asset. But on Friday evening, with the news of no agreement, the page turned again, and the movements reversed. In the financial markets, whispers of an agreement for a while and a non-agreement later are natural, and this game repeats. But each time effect will be less. This week too, there is a possibility that the agreement negotiations will go well and the dollar will become strong, but suddenly the matter will be reversed. Overall, pay attention to the debt ceiling news as non-economic calendar news.
But in the previous week, some members of the Federal Reserve, including the Chairman, Mr. Powell, gave a speech that generally had a slightly hawkish tone, which caused a rethinking of aggressive policies and strengthened the dollar.
Strong economic data, hopes for a debt ceiling deal, and comments from Fed members led to a reassessment of monetary policy expectations. As a result, the probability of an interest rate hike at the June meeting increased significantly. According to the CME FedWatch Tool, the possibility of a rate hike in June is now 37%, compared to 15% a week ago.
In the coming week, the US dollar and the New Zealand interest rate meeting will be important in the economic calendar.
On Tuesday at 13:45, the Flash Manufacturing PMI (Prev: 53.4 | Fore: 50.0) and Flash Services PMI (Prev: 53.6 | Fore: 52.6) will be published. Most market participants pay attention to the service sector because the US economy is primarily service-based. Also, market participants use PMI to check new orders and employment. The dollar might strengthen a little due to the possibility of raising interest rates in the next Federal Reserve meeting if the data is released better than expected, and the dollar can weaken if the data is weak.
On Wednesday at 18:00, the FOMC Meeting Minutes report will be published. Since the previous meeting, there have been many possibilities and speculations so the minutes could be old news. Nevertheless, it is still an event to consider that can bring surprises.
On Thursday at 12:30, the second Prelim GDP q/q (Pre: 1.1% | Fore: 1.1%) will be published, which shows the US economy's state. If GDP releases around expectations, it cannot bring much volatility to the dollar. Because it is delayed data and the economic status of the US can be checked earlier from the employment and inflation situation, etc. But it can cause good fluctuations in the dollar if accompanied by an ascending or descending surprise.
As usual, every Thursday at 12:30, the US unemployment claims index (Prev: 242K | Fore: 249K) is published.
On Friday at 16:00, the Core PCE Price Index m/m (April) (Prev: 0.3% | Fore: 0.3%) will be published. Also, at the same time, the Core Durable Goods Orders m/m (April) (Prev: 0.2% | Fore: 0.0%) will publish. Such a scenario shows that the battle with inflation is not over. A combination of strong data and still high inflation will likely keep the Fed on the hawkish side. Evidence of accelerating inflation could be significantly positive for the dollar as it increases the likelihood of further rate hikes by the Fed. However, bad news for the US economy could be bad for the dollar next week.
At 07:30 on Tuesday, the German Flash Manufacturing PMI, and at 08, the PMI indices of the European region will publish. You can see this data's previous value and forecast from the economic calendar section in the Trendo application.
On Tuesday at 08:30, England's Flash Manufacturing & Services PMI will be published. You can see this data's previous value and forecast from the economic calendar section in the Trendo application.
The RBNZ is the only major central bank holding a policy meeting this week. It is widely expected to raise interest rates by 0.25% on Wednesday at 02. That would be the 12th consecutive increase since the contractionary cycle began last October and would take interest rates to the highest level among advanced economies at 5.50%. Also, at 03, the RBNZ will hold a press conference.
On Wednesday at 06, the UK inflation report or CPI will be published. As you can see in the Consumer price index y/y (April) (Prev: 10.1% | Fore: 8.3%) and CPI m/m (April) (Prev: 0.8% | Fore: 0.8%), the forecast is downward. With the BOE recently announcing that recession and inflation are no longer expected to remain in the double-digit territory, investors think the likelihood of a UK rate hike versus a Fed rate cut is high. The BOE Governor will speak at 09:30, and the results can have significant points.
An unexpected rebound in manufacturing, particularly in Germany, could help ease concerns about a slowdown in the euro zone's economic momentum. That is why investors will closely watch Germany's Ifo business climate index and Final GDP q/q on Wednesday at 08 and Thursday at 06, respectively.