Markets Digest Central Banks as US Inflation Data Looms.
Global currency markets are starting the week digesting a series of key central bank decisions, with the theme of policy divergence becoming increasingly clear. Last week, the Bank of England held interest rates steady, but a narrow vote and dovish commentary signalled a growing possibility of a rate cut in August. This contrasts with the Federal Reserve's more patient stance, keeping the focus on relative interest rate outlooks. With a slightly lighter top-tier calendar this week, attention will be on key inflation and sentiment data, particularly from the US.
The Pound Sterling is navigating the mixed signals from the Bank of England. While inflation is proving sticky, the central bank's "dovish hold" last week has kept expectations of a summer rate cut on the table. With the UK economic calendar relatively quiet this week, aside from a final GDP reading, Sterling's performance will likely be influenced by shifts in broader market sentiment and developments in other major economies.
The US Dollar remains underpinned by the Federal Reserve's cautious approach to easing policy. After several weeks of major events, the focus for the Dollar now shifts to incoming data that could sway the Fed's thinking. Consumer confidence figures will be watched on Tuesday, but the week's main event will be Friday's Core PCE Price Index (the Fed's preferred measure of inflation), which will be critical for shaping future interest rate expectations.
The Euro continues to trade under the influence of both the divergent central bank outlook compared to the US and a degree of regional political uncertainty. Today's German Ifo Business Climate survey will provide an important and timely reading of sentiment in the Eurozone's largest economy. In the absence of other major European data, the Euro will likely remain sensitive to shifts in risk appetite and the direction of the US Dollar.
Events to Watch This Week:
Monday, June 23: German Ifo Business Climate (June)
Tuesday, June 24: US Consumer Confidence (June)
Thursday, June 26: US Final GDP (Q1)
Friday, June 27: US Core PCE Price Index (May)
While this week may lack the headline central bank decisions of the previous fortnight, it culminates in a crucial piece of data. The US inflation release on Friday has the potential to significantly impact the market's outlook for Federal Reserve policy, making it the key focal point for the week ahead.
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