FX Week Ahead – Top 5 Events: UK Inflation Rate; Canada Inflation Rate; US Retail Sales; FOMC Minutes; Australia Jobs Report

FX Week Ahead Overview:

  • The middle of the week promises a packed economic calendar: Tuesday, Wednesday, and Thursday contain all but one of the week’s ‘high’ rated events.
  • Incoming UK labor market and inflation data could stoke speculation that the BOE will pause its rate hike cycle, setting up a November 2021-like surprise for the British Pound. Rates markets currently have a 100% implied probability of a 25-bps rate hike next month.
  • The January FOMC meeting minutes won’t offer much insight into the desire for a 50-bps rate hike in March, insofar as those calls arrived several weeks after the January meeting. It’s doubtful that markets react to the January minutes in a similar fashion to the December minutes.

For the full week ahead, please visit the DailyFX Economic Calendar.

02/16 WEDNESDAY | 07:00 GMT | GBP Inflation Rate (CPI) (JAN)

UK inflation rates remain near 30-year highs, and the upcoming slate of data are likely to show that trend persisting. According to a Bloomberg News survey, the headline UK inflation rate (CPI) is due in unchanged at +5.4% y/y, while the core reading is set to nudge higher to +4.3% y/y from +4.2% y/y. In spite of these expectations, a March rate hike by the Bank of England isn’t a sure-thing, even as rates markets discount a 100% chance.

Last week, BOE Chief Economist Huw Pill said that he worried “that taking unusually large policy steps may validate a market narrative that Bank policy is either foot-to-the-floor on the accelerator or foot-to-the-floor with the brake.” Should the January UK inflation rate report miss expectations, the market may rethink March rate hike expectations – to the detriment of the British Pound.

02/16 WEDNESDAY | 13:30 GMT | CAD Inflation Rate (CPI) (JAN)

The COVID-19 omicron variant surge coupled with high oil prices means that inflation pressures are likely to stay elevated in the near-term – never mind the supply chain disruptions onset by trucker protests in recent weeks. According to a Bloomberg News survey, the headline Canada inflation rate (CPI) is due in steady at +4.8% y/y, while the core reading is set to edge higher to +4.1% y/y from +4% y/y. Having only recently begun its policy tightening efforts, the data are likely to reinforce the narrative that the BOC will be hiking its main rate by 25-bps in March.

02/16 WEDNESDAY | 13:30 GMT | USD Retail Sales (JAN)

Consumption is the most important part of the US economy, generating around 70% of the headline GDP figure. The best monthly insight we have into consumption trends in the US might arguably be the Advance Retail Sales report. As the COVID-19 omicron variant faded and the US labor market proved resilient, US consumption trends are expected to rebound at the start of 2022 after a sluggish end to 2021.

According to a Bloomberg News survey, consumption improved with the headline Advance Retail Sales figure due in at +2% m/m after a -1.9% m/m contraction in December. The Retail Sales Control Group, the input used to calculate GDP, is due in at +1.4% m/m from –3.1% m/m. In all, the data should be supportive of an otherwise meager 1Q’22 US GDP expectation, which currently rises less than +1% annualized, according to the Atlanta Fed GDPNow tracker.

02/16 WEDNESDAY | 19:00 GMT | USD January FOMC Meeting Minutes

Accelerating inflation rates at a 40-year high and an otherwise resilient US labor market are likely to underpin what will be considered a hawkish discussion at the January Fed meeting. But the January FOMC minutes may not reveal much by way of a 50-bps rate hike in March, insofar as the recent chatter about such a policy move has only gained steam after the January Fed meeting. It’s doubtful that markets react to the January minutes in a similar fashion to the December minutes.

02/17 THURSDAY | 00:30 GMT | AUD Employment Change & Unemployment Rate (JAN)

The Australian economy continues to climb out of its pandemic depths, now several months removed from rather draconian lockdowns that dampened economic activity. But the start of 2022 may not have seen the kind of acceleration that policymakers had hoped. According to a Bloomberg News survey, the Australian economy neither gained nor lost jobs in January, leaving the Australian unemployment rate on hold at 4.2%. It’s worth noting that the current Australian unemployment rate has already met the RBA’s 2022 year-end forecast, suggesting that once federal elections pass in May, rate hikes will arrive quickly thereafter.

— Written by Christopher Vecchio, CFA, Senior Strategist

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