The US dollar edged lower this morning after capping its first weekly loss since July, as markets look forward to a flurry of central bank policy decisions in the coming days. After dropping late last week, EURUSD is consolidating below 1.07 whilst GBPUSD sits around 1.24 after finding some support at 1.2380.
Recent mixed data in the US points to the FOMC leaving rates on hold when they announce their latest policy decision on Wednesday. Last month’s CPI inflation release showed disinflation progressed in the stickiest categories and recent indicators suggest labor market conditions and consumption are likely to cool further. Markets will pay close attention to the updated dot plot release for clues on whether policy makers favor one final rate hike this year.
The Bank of England meet this week, with the MPC expected to deliver another rate increase on Thursday, with markets pricing in a 0.25% hike, taking the benchmark rate to 5.5%. Wednesday sees the release of the August CPI print which is expected to come in at 7.2% from the previous 6.8%. Fuel prices continue to keep inflation elevated; however, October should bring some respite, with a drop expected, as the rise in household energy bills at the same point last year drops out of the annual calculation.
This week also sees the release of the final euro area CPI release which is expected to come in unchanged at 5.3%. A recent fall in inflation was not enough to stop the ECB from raising interest rates last week, but many in the market now believe that the central bank will now be on hold. Euro area flash PMIs are released on Friday and investors will look for further insight into the downside risks to the economic outlook and whether the region will be heading for a hard landing.
Have a good week.