With only a handful of economic data releases from the US that were mostly weaker than expected, the US Dollar remained on the back foot against most major currencies in the week gone by.
Ahead of this week’s critical FOMC meeting scheduled on Tuesday and Wednesday, a deal to avert US military strike on Syria and Larry Summers’ withdrawal from the race to be head of the Federal Reserve dragged the US Dollar lower on Monday.
This week, FOMC decision on whether to start tapering or not is likely to be the primary driver for global financial markets.
FOMC Decision - This week’s most important market moving economic event is the much-anticipated FOMC meeting scheduled on Tuesday and Wednesday, where the Federal Reserve is expected to reveal the tapering plan of its massive stimulus of $85 billion monthly asset purchases, also known as quantitative easing or QE3. After recent US economic data, that has fallen short of expectations, some investors now anticipate the central bank to announce trimming the size of its bond-purchase program by a modest amount, probably by $10 – $15 billion.
Besides the tapering decision, the Fed will also extend its projections for inflation, economic growth and inflation for 2016. The report will also include a breakdown of individual FOMC member’s interest rate forecasts.
Investors will also focus on some other key economic releases from the US economic calendar
in the week ahead to judge the health of the US housing and manufacturing sectors. Here is a brief outlook of the important economic releases from the US that includes housing data, regional manufacturing reports and inflation data.
Manufacturing Data – This week’s manufacturing data from the US that includes industrial production and two regional manufacturing surveys, Empire State Manufacturing Index and Philly Fed Manufacturing Index, are likely to show further strengthening of the manufacturing sector. Industrial production data, scheduled for release on Monday, is expected to post a modest gain of 0.5% for the month of August. The Empire State Manufacturing Index, also scheduled for release on Monday, is forecast to rise in September to 9.2 from last month’s level of 8.2. Meanwhile, the Philly Fed Manufacturing Index by the Federal Reserve banks of Philadelphia, scheduled for release on Thursday, is also expected to show a marginal gain to 10.3 in September from 9.3 recorded in August.
Housing Data – Housing data from the upcoming week’s US economic calendar is expected to show some moderation in the housing market. The release of August building permits, scheduled on Wednesday, is expected to show the number of permits in the month of August held steady at 0.95 million annualized pace. However, housing starts, also scheduled for release on Wednesday, are expected to rise slightly to an annual pace of 930,000. Meanwhile, reading on existing home sales, scheduled for release on Thursday, is anticipate to show a decline to an annualized rate of 5.27 million in August from 5.39 annual rate recorded in July.
Inflation Data - Inflation that has remained subdued throughout this year, running well below the Fed’s target of 2%. Consumer Price Index (CPI), scheduled for release on Tuesday, is expected to have climbed up 0.2% in August while core CPI is predicted to have risen 0.1%.
Although, US central bank is likely to take the center stage this week, market players will also be looking for some important economic releases from the UK and Euro-zone.
The most important event from the upcoming week’s UK economic calendar
is the minutes of the Bank of England’s latest policy meeting, scheduled for release on Wednesday. Other key UK economic releases include inflation and retail sales data, scheduled for release on Tuesday and Thursday respectively. UK CPI has been holding steady above the 2.5% mark since the beginning of 2013 with the exception of April when the CPI slowed marginally to 2.4%, but still remains well above the BoE’s target of 2%. The inflation figure for the month of August is anticipated to drop marginally and come-in at 2.8%.
This week’s key data from the Euro-zone economic calendar
features the German ZEW Economic Sentiment, scheduled for release on Tuesday. In August, the German Zew economic sentiment index soared well above the economists expectation to 42.0 from 36.3 in July. For the month of September, the index is now expected to climb further to 45.3.
- After the recent up-move in other major currencies versus the US Dollar, investors are likely to reduce risk by lightening their long positions ahead of a very important announcement by the Federal Reserve.
- Further, should the Fed surprise with the pace of tapering its stimulus program, the US Dollar is likely to witness some big up-move in the medium-term.
Senior Market Analyst