Softer US Inflation Shifts Focus to Retail Sales Data.
A significant shift in sentiment is evident in the foreign exchange market, following last week's softer-than-expected US inflation report which halted the US Dollar's rally. After a period of stability following the French elections, market attention now pivots back to key economic data. This week, reports on consumer spending from both the US and UK will be critical in shaping the near-term outlook for central bank policy.
The Pound Sterling remains sensitive to the prospect of a Bank of England rate cut in August. The most important data point for the Pound this week will be the UK inflation report on Wednesday. A weaker-than-expected reading would likely solidify bets for a summer rate cut and could weigh on the currency, while a surprisingly high number would challenge that view and provide support for Sterling.
The US Dollar is on the defensive after last week’s key inflation data came in below forecast, prompting a significant market reassessment of the Fed's policy path. This week's US retail sales report on Tuesday will be the next major test. The data will provide a vital snapshot of consumer health, helping investors gauge whether the US economy is beginning to slow, which would reinforce the case for monetary easing.
The Euro is trading with a greater degree of stability now that the French election process is complete. With the immediate political risk reduced, the market's focus can return to economic fundamentals and the European Central Bank's policy trajectory. Important sentiment surveys and flash business activity data from the Eurozone at the end of the week will offer fresh insights into the health of the bloc's economy.
Events to Watch This Week:
⦁ Tuesday, July 15: US Retail Sales (for June)
⦁ Wednesday, July 16: UK CPI Inflation Report (for June)
⦁ Thursday, July 17: US Initial Jobless Claims
⦁ Friday, July 18: UK Retail Sales (for June) & Eurozone Flash PMIs (for July)
The narrative has shifted following last week’s pivotal US inflation data. This week will be about confirming whether a broader economic slowdown is underway, which could pave the way for central bank rate cuts. The US and UK consumer spending reports are the key releases to watch and are likely to be the primary drivers of market volatility.
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