Week Ahead in FX (July 24 – 28): Global PMIs, U.S. GDP, and 3 Interest Rate Decisions
What’s the best way to spend the last full trading week of July?If you answered, “Pack it with top-tier economic events” then you win a prize!This week, we’ll see a bunch of PMI readings from the major economies, Uncle Sam’s first Q2 GDP reading, AND monetary policy decisions from the Fed, ECB, and BOJ.Before all that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!And now for the closely-watched economic indicators on the calendar this week:Global PMIsFX players will start the week with July scorecards for the manufacturing and services industries of the major economies.Australia and Japan have already printed their mixed PMI results, and the rest of Monday’s data releases don’t promise to be any more decisive. Here’s a list of what markets are expecting:France (7:15 am GMT): HCOB manufacturing PMI to slip from 46.0 to 45.5; services PMI to improve from 48.0 to 48.2Germany (7:30 am GMT): HCOB manufacturing PMI to slip from 40.6 to 40.0; services PMI to decline from 54.1 to 52.9Eurozone (8:00 am GMT): HCOB manufacturing PMI to improve from 43.4 to 43.5; services PMI to dip from 52.0 to 51.5U.K. (8:30 am GMT): S&P Global/CIPS manufacturing PMI to slip from 46.5 to 46.0; services PMI to decline from 53.7 to 53.0U.S. (1:45 pm am GMT): S&P Global/CIPS manufacturing PMI to slip from 46.3 to 46.0; services PMI to decline from 54.4 to 54.0Substantial deteriorations in the manufacturing and/or services sectors could feed into global growth concerns and set a bearish tone to risk-taking ahead of this week’s top-tier releases.Global InflationShould more traders price in their “peak inflation” optimism? A bunch of preliminary CPI reports from major economies could make or break these speculations:Australia’s (July 26, 1:30 am GMT) price increases are expected to have slowed down from 1.4% to 1.1% between Q1 and Q2, with the annual rate dipping from 7.0% to 6.3%.Two of Japan’s unofficial inflation reports are also expected to print decelerations. BOJ’s core CPI (July 25, 5:00 am GMT) could dip from 3.1% y/y to 3.0% y/y while Tokyo’s core CPI (July 27, 11:30 pm GMT) – a leading indicator for Japan’s price trends – could slow down from 3.1% y/y to 2.9% y/y.Eurozone economies are a bit more mixed, with Germany (July 28) probably maintaining its 0.3% monthly rate while France (July 28, 6:45 am GMT) sees a slowdown from 0.2% to 0.0% in July.FOMC StatementAfter pausing its rate hikes in June, everybody and their momma are expecting the Fed to raise its interest rates by 25 basis points to the 5.25% – 5.50% range on July 26 at 6:00 pm GMT.Remember that the Fed won’t release new dot plot and economic projections AND won’t meet again until September.This means that all eyes will be on the central bank’s forward guidance to see how flexible FOMC members are to sticking to another rate hike amidst lower inflation and a tight labor market.ECB’s Policy DecisionLike the Fed, the European Central Bank (ECB) is also expected to raise its interest rates by another 25 basis points, this time to 4.25%.Market players will take a closer look at the ECB’s forward guidance especially after some members have been sounding non-committal to further tightening beyond this week’s rate hike.ECB members also won’t meet again until September, so traders will have the July 27, 12:15 pm GMT statement and the 12:45 pm GMT ECB presser to work out the central bank’s plans for the rest of the year.U.S. Advance GDPLast week, a weaker-than-expected GDP reading from China – the world’s second-largest economy – sent risk aversion vibes in the markets.Will the world’s largest economy disappoint as well?On July 27 at 12:30 pm GMT, we’ll see the first reading of Uncle Sam’s Q2 2023 GDP. Word around is that growth has slowed down from 2.0% to 1.8%, which would mark the weakest expansion pace since the recession in early 2022.Wildly weaker-than-expected growth readings could inspire risk aversion and flight to (non-USD) safe haven assets so make sure you’re around during the event!BOJ’s Policy DecisionWe know that the Bank of Japan (BOJ) isn’t likely to make monetary policy changes, but the markets have been SO ready to see some give to the BOJ’s Yield Curve Control (YCC) biases.This is probably why the yen saw volatility last Friday when word got around that Governor Ueda and his team would stand pat and NOT make changes to any of their policies this week.We’ll know for sure on Friday during the Asian session when the BOJ prints its July policies. Look out for conditions in the BOJ guidance that would help convince central bank members to adjust their dovish stances!
What’s the best way to spend the last full trading week of July?
If you answered, “Pack it with top-tier economic events” then you win a prize!
This week, we’ll see a bunch of PMI readings from the major economies, Uncle Sam’s first Q2 GDP reading, AND monetary policy decisions from the Fed, ECB, and BOJ.
Before all that, ICYMI, I’ve written a quick recap of the market themes that pushed currency pairs around last week. Check it!
And now for the closely-watched economic indicators on the calendar this week:
Global PMIs
FX players will start the week with July scorecards for the manufacturing and services industries of the major economies.
Australia and Japan have already printed their mixed PMI results, and the rest of Monday’s data releases don’t promise to be any more decisive. Here’s a list of what markets are expecting:
France (7:15 am GMT): HCOB manufacturing PMI to slip from 46.0 to 45.5; services PMI to improve from 48.0 to 48.2
Germany (7:30 am GMT): HCOB manufacturing PMI to slip from 40.6 to 40.0; services PMI to decline from 54.1 to 52.9
Eurozone (8:00 am GMT): HCOB manufacturing PMI to improve from 43.4 to 43.5; services PMI to dip from 52.0 to 51.5
U.K. (8:30 am GMT): S&P Global/CIPS manufacturing PMI to slip from 46.5 to 46.0; services PMI to decline from 53.7 to 53.0
U.S. (1:45 pm am GMT): S&P Global/CIPS manufacturing PMI to slip from 46.3 to 46.0; services PMI to decline from 54.4 to 54.0
Substantial deteriorations in the manufacturing and/or services sectors could feed into global growth concerns and set a bearish tone to risk-taking ahead of this week’s top-tier releases.
Global Inflation
Should more traders price in their “peak inflation” optimism? A bunch of preliminary CPI reports from major economies could make or break these speculations:
Australia’s (July 26, 1:30 am GMT) price increases are expected to have slowed down from 1.4% to 1.1% between Q1 and Q2, with the annual rate dipping from 7.0% to 6.3%.
Two of Japan’s unofficial inflation reports are also expected to print decelerations. BOJ’s core CPI (July 25, 5:00 am GMT) could dip from 3.1% y/y to 3.0% y/y while Tokyo’s core CPI (July 27, 11:30 pm GMT) – a leading indicator for Japan’s price trends – could slow down from 3.1% y/y to 2.9% y/y.
Eurozone economies are a bit more mixed, with Germany (July 28) probably maintaining its 0.3% monthly rate while France (July 28, 6:45 am GMT) sees a slowdown from 0.2% to 0.0% in July.
FOMC Statement
After pausing its rate hikes in June, everybody and their momma are expecting the Fed to raise its interest rates by 25 basis points to the 5.25% – 5.50% range on July 26 at 6:00 pm GMT.
Remember that the Fed won’t release new dot plot and economic projections AND won’t meet again until September.
This means that all eyes will be on the central bank’s forward guidance to see how flexible FOMC members are to sticking to another rate hike amidst lower inflation and a tight labor market.
ECB’s Policy Decision
Like the Fed, the European Central Bank (ECB) is also expected to raise its interest rates by another 25 basis points, this time to 4.25%.
Market players will take a closer look at the ECB’s forward guidance especially after some members have been sounding non-committal to further tightening beyond this week’s rate hike.
ECB members also won’t meet again until September, so traders will have the July 27, 12:15 pm GMT statement and the 12:45 pm GMT ECB presser to work out the central bank’s plans for the rest of the year.
U.S. Advance GDP
Last week, a weaker-than-expected GDP reading from China – the world’s second-largest economy – sent risk aversion vibes in the markets.
Will the world’s largest economy disappoint as well?
On July 27 at 12:30 pm GMT, we’ll see the first reading of Uncle Sam’s Q2 2023 GDP. Word around is that growth has slowed down from 2.0% to 1.8%, which would mark the weakest expansion pace since the recession in early 2022.
Wildly weaker-than-expected growth readings could inspire risk aversion and flight to (non-USD) safe haven assets so make sure you’re around during the event!
BOJ’s Policy Decision
We know that the Bank of Japan (BOJ) isn’t likely to make monetary policy changes, but the markets have been SO ready to see some give to the BOJ’s Yield Curve Control (YCC) biases.
This is probably why the yen saw volatility last Friday when word got around that Governor Ueda and his team would stand pat and NOT make changes to any of their policies this week.
We’ll know for sure on Friday during the Asian session when the BOJ prints its July policies. Look out for conditions in the BOJ guidance that would help convince central bank members to adjust their dovish stances!
