US Dollar, British Pound May Respond to Bernanke Speech, UK GDP Next Week

A handful of high profile economic and central bank reports could impact the forex markets next week, and the US dollar, British pound, Canadian dollar, and Australian dollar are at particularly high risk.

Events to watch for include testimony by Federal Reserve Chairman Ben Bernanke, the release of the minutes from the Bank of England’s last policy meeting, UK GDP, the Bank of Canada’s latest rate decision, and Australian inflation data.

• Bank of Canada Rate Decision – July 21
  The Canadian dollar could see a pickup in volatility on Tuesday at 9:00 ET as the Bank of Canada is expected to leave rates unchanged at 0.25 percent once again. After the Bank left rates unchanged on June 4, they said that they would maintain a neutral stance through June 2010, and the rest of the statement was relatively optimistic and didn’t touch upon quantitative easing, which was first brought up in their April Monetary Policy Report. The Bank said that “financial conditions and commodity prices have improved significantly, and consumer and business confidence have recovered modestly,” and while “macroeconomic risks are roughly balanced,” they believe that “overall risks to its inflation projection remain tilted slightly to the downside.” If we see a reiteration of the last policy statement, which seems quite possible given the improvements we’ve seen in some of the timeliest economic indicators, the Canadian dollar may gain slightly. However, if the Bank of Canada’s comments reflect signs of pessimism or deflation concerns, the currency could fall sharply.
   
• Australian Consumer Prices (2Q) – July 21
  Australia's headline consumer price index is forecasted to have risen 0.5 percent during Q2, bringing the annual rate down to a 10-year low of 1.5 percent from 2.5 percent. However, the Reserve Bank of Australia’s core measures are projected to hold at more robust levels on an annual basis, with the trimmed mean anticipated to slip to 3.5 percent from 3.9 percent and the weighted median forecasted to slip to 4.1 percent from 4.4 percent. Such moves would tell us that prices for volatile items like energy are responsible for the steep drop in headline consumer prices, and unless the core measures plunge, the markets aren’t likely to speculate over another rate cut by the RBA in August. In fact, Credit Suisse overnight index swaps are pricing in 63 basis points worth of rate increases over the next 12 months, and stronger-than-expected consumer prices could further this sentiment and send the Australian dollar higher.
   
• Fed’s Bernanke Gives Monetary Policy Report Before House/Senate Panels – July 21/22
  Federal Reserve Chairman Ben Bernanke is due to speak on monetary policy before the House Financial Services Committee on Tuesday at 10:00 ET and the Senate Banking Committee on Wednesday at 10:00 ET. Generally, the morning will start off with a prepared speech, and will be followed by hours of questions from members of the House and Senate, creating many opportunities for market-moving comments to emerge. Topics that traders should watch out for include economic outlooks and the health of the financial markets. Since risk trends remain the primary driver of the markets, news that stokes demand for equities will likely boost FX carry trades as well, while declines in stocks should lead to gains for “safe havens” like the US dollar and Japanese yen.
   
• Bank of England Meeting Minutes (JUL 9) – July 22
  The release of the minutes from the Bank of England's July 9 meeting at 4:30 ET on Wednesday may not be as market-moving as they've been in the past since comments are likely to be fairly neutral. Nevertheless, economic conditions in the UK remain bleak, as the final reading of Q1 GDP for the UK was unexpectedly revised down to an annual rate of -4.9 percent, the lowest since recordkeeping began in 1956, from -4.1 percent. This leaves GDP at the bottom of the BOE’s previous range of forecasts, which has left speculation that the central bank will expand their quantitative easing (QE) program to fester. As a result, if there are signs within the minutes that this is occurring, the British pound could take a hit.
   
• UK Gross Domestic Product (2Q A) – July 24
  The 04:30 ET advanced reading of Q2 GDP for the UK is forecasted to contract for the fourth straight quarter at a rate of -0.3 percent, which could drag the year-over-year rate down to a fresh record low of -5.2 percent from -4.9 percent. The UK has been hit particularly hard by the credit crunch since the country was considered to be one of the biggest financial centers in the world. This has translated into a full-on collapse of the housing market, climbing job losses, and weak consumption. Furthermore, with growth slowing around the world, demand for British exports has declined as well, putting a large burden on manufacturers. Overall, a greater-than-expected decline could lead the British pound lower as the data would raise the odds that the Bank of England will expand their quantitative easing efforts. On the other hand, if GDP is a bit better than forecasts, the currency could surge. 
  
   

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators

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