We get some key inflation reports across the globe this week. Thease are likely to inform policymakers on their next monetary policy decisions in September. Markets are sticking to the soft landing theme in the US which means solid growth while inflation cools slowly towards target, with rate cuts due next year as high borrowing costs and tight lending conditions impact activity and investment. Of course, there is much that can happen to this “goldilocks” scenario as policy tightening on the scale that we have seen over the past 18 months has been the most aggressive in over 40 years.

The dollar has now posted four consecutive weeks of gains since tanking in early July. There are obvious technical barriers above on the DXY (USDX) including the late June/early July highs as well as the 200-day simple moving average. The recent encouraging CPI data was not enough to derail the dollar rebound. It seems we need to see sharp downside data surprises in the US to reverse the buck’s near-term bullish trend. Wednesday’s FOMC minutes could further underpin support for the USD as we could hear a more hawkish bias from officials. Solid retail sales would also cement the soft landing narrative.

It’s a big week in the UK for economic releases. The mid-month data dump includes wage growth and the latest inflation report. These two metrics are the key ones for the BoE. They may show some divergence, with earnings remaining elevated while falling energy and food prices bring down the CPI figures. Most of the areas of the economy delivered much better-than-expected growth in last Friday’s GDP data. Monney markets price in around 20bps of tightening for the next month’s BoE meeting. GBP/USD has lost long-term trendline support from the March low. Support is the August spike trough is at 1.2620 with the 100-day simple moving average just below here.

Major risk events of the week

15 August 2023, Tuesday

-China Data: Fixed asset investment, industrial production, and retail sales numbers for July are all released. Following the worsening contraction in both exports and imports, as well as the fall in consumer prices, another set of disappointing data could weigh further on market sentiment. PMI numbers released earlier this month also showed that China’s post-Covid recovery has yet to kick into gear.

–UK Jobs: The job market has been cooling which means the unemployment rate could tick up. Wage growth is the key metric and a concern for the BoE as it remains strong. A print above 7.5% is forecast. This is expected to fall to around 6% by year-end according to the bank’s forecasts.

-US Retail Sales: Consensus sees the headline at 0.4% in July, up from the prior 0.2%. Car sales and Amazon Prime day are seen lifting activity. Higher interest rates should be offset by falling price pressures going forward.  

-Canada CPI: The headline rate could be poised to rebound from 2.8% y/y due to the bounce in oil prices. If the core increases as well, the prospect that the BoC hikes again in September will rise. Markets currently give that a one in five chance. The loonie has had a tough time recently with risk sentiment muted. The 200-day SMA in USD/CAD at 1.3448 is offering some resistance.

16 August 2023, Wednesday

-RBNZ Meeting: Markets expect the RBNZ to keep rates unchanged at 5.50%. The bank’s baseline forecast is that rates have peaked and should be on hold until August 2024. Data has been mixed recently with softer GDP balanced against persistent domestic inflation. NZD/USD dropped to nine-month lows on Friday. There not much near-term support below the May low at 0.5985.

–UK CPI: The market median is for a headline print of 6.7% from 7.9% in June. Energy bills fell by 20% last month while food inflation is forecast to decline. But services CPI is key and may remain elevated.

-FOMC Minutes: Debate about the policy pause will be in focus. But policymakers may be wary about indicating a peak in rates as this could see rate cuts priced in for early next year.

18 August 2023, Friday

-Japan CPI: National core CPI is expected to cool to 3.1% in July from 3.3% in June. The BoJ recently raised its near-term inflation projections but cut its forecasts further out. Tokyo CPI – seen as a proxy for the wider mainland figures – topped expectations printing at 4% for the “super core”. The yen has been weak as US Treasury yields have perked up. The market is watching 145 in USD/JPY for any signs of verbal jawboning and intervention.

-UK Retail Sales: Wet weather in July could hit activity, after the contrasting warmer June and decent figures. Policymakers are currently more concerned with high core price pressures than slow sales growth.