Key points to watch out for:
- CPI numbers in the UK, Japan, Canada and New Zealand
- China will also be the focus of interest, with Q1 GDP just around the corner
- Start of the week with US retail sales and the start of earnings season
UK CPI data
Following the release of a new report about CPI on US soil, inflation data will continue to carry the spotlight this week, including in the UK. The first item on the agenda this week in the UK is the February employment report, due on Tuesday, April 16.
Employment declined in the three months to January, increasing the unemployment rate to 3.9%. The UK labor market has largely slowed over the past year, amid a small contraction on the GDP. The UK economy appears to be showing signs of recovery, although UK employment growth may not be expected for some time. Regarding wage inflation, the cooling of the labor market may be positive news.
Average weekly earnings growth, excluding bonuses, has moderated from a peak of 8.9% year-on-year last summer to 6.1% in the first month of this year. Wage growth is likely to slow further in February, a trend underscored by a Bank of England survey indicating that wage growth expectations have hit a two-year low.
However, slower wage growth will not be the only factor affecting sterling this week, as investors will also be looking at the latest CPI data due on Wednesday, April 17. Inflation in the UK slowed to 3.4% in February and is expected to fall again in March to around 3.1%. The underlying figure is also expected to decline again.
Finally, on Friday, April 19, figures related to March retail sales will be released, looking for signs as to whether or not consumer spending is picking up.
Sterling appears to be at the lower end of the sideways range it has maintained since December. The upcoming data could pose a downside risk if the Bank of England proceeds with interest rate cuts in August, especially as the Federal Reserve has delayed any cuts until at least September.
Should the UK inflation outlook improve, the pound may struggle to hold above $1.25. Traders will need to see whether the UK economy gains further momentum or if US growth slows to sustain that price level.
Euro quiet, behind the European Central Bank
This week in the eurozone is expected to be quiet for the euro, following the European Central Bank’s decision. Traders are likely to focus only on the final March CPI figures and other minor releases.
At its April meeting, the European Central Bank kept interest rates unchanged as expected but noted that a rate cut might be considered at its next meeting in June. In 2024, inflation in Europe has remained much more subdued compared to that in the United States. With a less strong economy, the European Central Bank may begin to gradually ease monetary policy.
The headline consumer price index rate fell to 2.4% in March and no revisions are expected in the final estimate scheduled for Wednesday, April 17.
Earlier this week, industrial production figures attracted attention on Monday, April 15.
Barring any upward revisions to the CPI data, the euro is likely to be lower against the dollar over the next few days.
Can Japan’s CPI improve the yen’s market price?
Inflation in Japan rose sharply in February after a year of declines. The core CPI, which does not take into account food prices and which the Bank of Japan is targeting to bring inflation to 2%, increased from 2.0% to 2.8%. However, while a small rebound in headline CPI is possible, the core figure, which will be released on Friday, April 19, is expected to decline to 2.6%.
Investors are questioning whether inflationary pressures in Japan can increase significantly, leading to cautious estimates for further rate hikes—a factor that has heavily impacted the yen’s performance.
Meanwhile, the Bank of Japan appears to be subtly preparing for a second rate hike by the end of the year, as hinted by Governor Ueda. Additionally, the BOJ is expected to raise its inflation forecasts at its next meeting on April 26.Policymakers expect that significant wage settlements from this spring’s negotiations and the termination of energy subsidies in May will sustain inflation above 2% in the medium term.
It is unlikely that the yen will strengthen in the currency market until these changes are reflected in the CPI data.
A mixed backdrop for China’s economy
China will also release GDP expectations on Tuesday, April 16, amid positive signs of economic recovery. The world’s second-largest economy likely grew by 1.4% quarter-on-quarter in the three months through March, increasing from last quarter’s 1% pace. However, markets may focus more on the annual rate, which is expected to have slowed from 5.2% to 4.6%.
March’s industrial production and retail sales numbers may also leave investors unimpressed, as both are expected to have declined on a year-over-year basis compared to February.
Any disappointment in the GDP figures could exacerbate issues for both Australia and New Zealand, which have recently been unsettled by speculation about the Fed’s rate cuts. Traders of the Australian dollar will closely monitor national employment numbers on Thursday, April 19, while for the New Zealand dollar, vital CPI data will be released on Wednesday, April 1.
The Reserve Bank of New Zealand held a neutral stance at its April policy meeting, signaling that there is still time for a rate cut. But if CPI rises less than the estimated 4.1% year-on-year for the first quarter, investors may become more confident about a possible rate cut by August.
Canada’s inflation in focus
Another country releasing CPI this week is Canada on Tuesday, April 16. The Bank of Canada continues to think about a possible rate cut in June, despite being highly cautious about persistent inflation. Canada’s headline CPI declined to 2.8% in February as well for underlying measures.
Should this trend continue into March, it could increase the odds of a June rate cut, which are currently below 50%, increasing pressure for the Canadian dollar.
The Canadian dollar has lost about 3.5% against the U.S. dollar this year, so any further signs of a possible divergence in monetary policy between the Bank of Canada and the Federal Reserve could add to those losses.
Retail sales are possibly the only threat to the dollar’s rise
The U.S. agenda for this week again appears to be quiet, with retail sales figures on Monday, April 15 the main release.
Following recent NFP and CPI reports, which have lowered expectations for a summer rate cut by the Federal Reserve, investors are bracing for quieter data in the U.S.
According to estimates, retail sales increased by 0.3% m-o-m for March, a slowdown from the previous rate of 0.6%.
With markets still reeling from diminished hopes for an early rate cut, the dollar is likely to remain firm, while Wall Street stocks could rebound if the first quarter earnings season starts strongly. This week’s focus will be on Netflix, which will release its results on Thursday, April 8.
