2023-06-21 17:23
Forex fundamental analysis and economic calendar review (June 19-23)
A review of last week's important events
Important data for the US was published last week in the economic calendar. The US inflation data was more in line with expectations of a decline. The monthly Core CPI inflation was released in line with the forecast of 0.4%, as last time, but the annual inflation decreased from 4.9% in April to 4% in May. This disinflation was in line with market expectations and was almost included in the dollar's value before the data release, so the US dollar weakened on the data at the first moment of the inflation data release, but then changed course and became strong in the market.
There was a Federal Reserve meeting last week on Wednesday. In this meeting, the Fed kept its interest rate constant at 5.25%, as expected. In the Federal Reserve monetary policy statement, the dot plot chart showed that the final rate forecast for the end of 2023 increased from 5.1% predicted in March to 5.6%. Although the dot plot also points to a 1% cut in 2024, FOMC Chairman Jerome Powell explained that rate cuts would only be appropriate when inflation eases, noting that none of the policymakers expected a rate cut this year. Powell declined to commit to another rate hike in early July when asked. However, the hawkish tone pushed the US Treasury yields higher and supported the USD, while gold and stocks fell.
The US Unemployment claims, which showed there were 262,000 first-time claims for unemployment benefits in the week before June 3, prompted capital outflows from the US dollar. And US consumer sentiment improved in early June, and the UoM consumer confidence index rose to 63.9 from 59.2 in May. The release also showed that long-term inflation expectations remained roughly unchanged at 3%. The result caused the dollar's relative strength on the last day of the week.
Among the important events of last week, we can mention the European Central Bank's meeting, the interest rate of this bank increased from 3.75% to 4% as expected, but the monetary policy and the press conference of the European Central Bank had a very hawkish tone so that the bank clearly stated that it will continue to increase its interest rate. This decision caused the withdrawal of capital from the US dollar and support for the European Euro. You can read about what the European Central Bank's decision has to do with the dollar in the "What is the Dollar Index?" article.
The economic calendar review from June 19-23
Next week, the Bank of England and Switzerland will announce their interest rate decisions. Both are expected to raise their policy rates. Also, PMI data for Europe, England, and the US will publish.
This week will be quieter for the US dollar in terms of the economic calendar, and the market will still seek to digest the events of inflation and the interest rate meeting of the previous week.
In general, this week, some members of the Federal Reserve, including the head of this institution, will give a speech that can make the path of the Federal Reserve's monetary policies clearer for investors. Mr. Powell will speak on Wednesday and Thursday at 14:00 UTC. Considering that Mr. Powell gave a speech in the previous week's meeting, this week's statements will probably emphasize the last topics. Will the interest rate increase or not?
As usual, every Thursday at 12:30, the US unemployment claims index (Prev: 229K | Fore: 236K) is published.
However, at 13:45, the US PMI index report, Flash Manufacturing PMI (Prev: 48.8 | Fore: 48.5), and the Flash Services PMI (Prev: 54.9 | Fore: 54) will publish. The US economy is service-oriented, and that's why the service sector's PMI report is more important if published according to or better than the forecasts since it can increase the dollar's strength.
UK CPI or inflation on Wednesday at 06: Britain has one of the highest inflation rates in the Western world thanks to Brexit, high fuel prices, and a tight labor market. The Bank of England has been trying to control inflation for the past 18 months, but it has not yet decreased significantly. Pressure on policymakers to quickly control inflation is mounting after wage growth and underlying price pressures recently started to pick up again, dashing hopes for a pause. Total inflation is expected to moderate in May to 8.5% annually. However, even if there is another significant decline in the aggregate CPI, policymakers will likely be more concerned about the net index. Core CPI is expected to ease to 6.7% in May after reaching 6.8% in April, suggesting another wave of second-round effects is underway.
Interest rate setting meeting (June) (Prev: 4.50% | Fore: 4.75%) and BOE monetary policy statement on Thursday at 11: If the CPI release is higher than expected, supported by an employment report provided strong, the Bank of England may decide to raise interest rates by 0.5%. However, it is highly improbable. Investors only considered a 12% chance of a 0.5% hike because the Bank of England did not move against markets during this contractionary cycle, except when the BOE was surprised during the ascent. On Thursday, the MPC is likely to point to a delay in its existing policy tightening and risks to the housing market if it raises the Bank Rate by 0.25% as expected. There is no press conference or forecast update at the June meeting, but any change in tone in the statement that suggests further rate hikes are likely will be positive for the pound. Even if the Bank of England comments a little on its intentions in future meetings, the pound could benefit from a set of positive data.
Monetary Policy Assessment (second quarter) (Prev: 1.50% | Fore: 1.75%), SNB Policy Rate & SNB Press Conference on Thursday at 07:30 & 08: The possibility of a 0.5% rate hike by the Swiss National Bank increased on Thursday after remarks by Swiss National Bank Governor Thomas Jordan. The hawkish tone comes although Swiss inflation eased to 2.2% in May. However, The SNB does not seem to consider this policy restrictive enough, as it wants to see inflation fall below 2%. Policymakers may also be concerned that the CPI decline is temporary, and given that the SNB meets only four times a year, a 0.5% rate hike seems more likely. If so, the franc could enjoy strong gains as the possibility of a 0.5% rate increase is currently priced at around 60%. However, the scale of the rate hike will depend on whether the SNB signals further contraction in the year's second half.
We can call This week's Friday PMI day because all types of indices of most countries' PMIs will release on this day. The Japanese PMI index will publish at 00:30, the German PMI index at 07:30, the European PMI index at 08, the UK PMI index at 08:30, and the US PMI index at 13:45. You can see this data's previous and forecast value in the Trendo application from the economic calendar section.