Forex traders will see a bevy of key economic data released this week, including US and UK consumer prices, US retail sales, and the Bank of England’s Quarterly Inflation report. However, the most market-moving release could be Euro-zone Q2 GDP, as ECB President Trichet’s dovish commentary last week signaled concern for expansion in the region. With quarterly growth anticipated to actually contract, the downtrodden EUR/USD pair could see further losses.
• UK Consumer Price Index – August 12
On Tuesday at 4:30 EDT, UK consumer price growth in July is expected to accelerate even faster to a 4.2 percent annual pace, which would mark the sharpest rise since May 1992. Inflation remains of great concern to the Bank of England, especially as the Bank’s Governor Mervyn King forecasts that CPI will rocket above 4 percent. However, the BOE has a dual mandate to maintain price stability and to promote sustainable growth and employment. The UK has already seen indications of a broad economic slowdown, but adding to the fragile nature of the UK’s financial sector to the mix puts the Bank of England in a particularly precarious position, as a rate increase meant to fight inflation could easily push the UK into recession and trigger a severe credit crisis. As a result, the UK's MPC will likely continue to sound hawkish on inflation in order to contain consumer inflation expectations, but when it comes down to it, their bark may be bigger than their bite as the Bank of England is highly unlikely to actually raise rates, especially as overnight index swaps actually price in 50bps worth of rate cuts within the next year. Nevertheless, very strong UK CPI figures could lead the British Pound to rally upon release, while a soft reading could weigh the currency down.
• Bank of England’s Quarterly Inflation Report – August 13
Just a day after the release of UK CPI, the Bank of England’s Quarterly Inflation Report will hit the wires at 5:30 EDT. This has great market-moving potential as it will serve as a more timely view of the Monetary Policy Committee’s bias (the August 7 meeting minutes will not be released until August 20). When the BOE last released this report in May, they referred to their recent policy meeting and said, “the immediate prospect was for a sharp increase in inflation, which was already above the target, and sluggish output….The key challenge for policy was to balance those conflicting risks.” Meanwhile, though the BOE’s CPI projections were revised higher, GBP/USD subsequently plummeted 50 pips within 10 minutes of release. This time, there’s potential for the Bank’s GDP projections to be revised down, and as a result, this news could be quite bearish for the British Pound.
• US Advance Retail Sales – August 13
Advance Retail Sales are expected to rise 0.1 percent in July and the index that excludes auto sales is forecasted to increase 0.5 percent, as consumers continue to spend. Their spending patterns, though, may be indicative of a worrying trend. According to the latest report from the International Council of Shopping Centers (ICSC), sales slowed to a 2.6 percent annual pace in July from 4.2 percent in June thanks to a continued pullback in spending on discretionary items such as apparel and furniture. However, spending actually increased at wholesale and discount stores as consumers sought cheaper prices on food and household items. As a result, there is indeed potential for Advance Retail Sales to improve and add to the US dollar’s already-substantial gains. On the other hand, we also have to consider the fact that average gasoline prices fell throughout the latter part of July from over $4/gallon. In recent months, the surge in gas prices alone has helped lift the overall index since it is not adjusted for inflation. Thus, recent declines could actually weigh on the headline reading and pushed Advance Retail Sales into negative territory for the first time in five months.
• Euro-zone Q2 GDP – August 14
At 5:00 EDT on Thursday, Euro-zone GDP is forecasted to have contracted during Q2 by 0.2 percent, pulling the annual rate of growth down to a more than 3-year low of 1.5 percent. The drop would be in line with the “weakening of real GDP growth in mid-2008" that ECB President Trichet cited last Thursday, and there may be potential for even more disappointing numbers. In fact, the annual rate of Euro-zone retail sales growth fell to a record low of -3.1 percent in June, while July PMI reports for both the services and manufacturing sectors signaled a contraction in business activity for the second months in a row. However, the release of German GDP at 2:00 EDT on Thursday will be the best leading indicator. Expansion in the Euro-zone’s largest economy is anticipated to have contracted a whopping 0.8 percent for the quarter – the worst reading since Q1 1993 – which would pull the annual rate down to 1.6 percent from 2.6 percent. Clearly, economic data out of the Euro-zone points toward additional downside risk for the Euro.
• US Consumer Price Index – August 14
The US headline consumer price index for the month of July is expected to rise to an annual rate of 5.2 percent – the highest since February 1991 – upon release at 8:30 EDT. A bulk of the increase will likely be the result of food price gains, but there is potential for the pullback in oil prices from its July record of nearly $148/bbl down toward $125/bbl to actually weigh on the index a bit. Meanwhile, core CPI is anticipated to show a mild 0.2 percent rise for the month, which would leave the annualized reading at 2.4 percent. However, if any of these figures surprise to the upside or downside, the markets will respond accordingly and the moves could be dramatic.
See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.
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