Markets wait for ‘real news’ from US

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Charles Purdy

A disappointing end to an otherwise positive week for sterling saw it lose ground across the board on Friday, even with no significant economic data being released from the UK. Sterling gave back all gains made against the euro earlier in the week, and ended at a comparable level to where it had been last Monday. The British currency did however perform better against the US dollar, despite conceding some ground following better-than-expected inflation data from the US.
The week ahead starts on a relatively quiet note for sterling, with no fundamental data releases expected until tomorrow when inflation figures for the month of August will be released; this is forecast to fall slightly to 0.0 percent. Following a surprise increase in July, any positive inflation figure will be gladly welcomed by investors.
Employment data on Wednesday is expected to provide further proof that slack in the economy continues to be taken up, with wage growth of 2.5 percent forecast. Retail sales data on Thursday should show some increase over July’s figures, whilst the Bank of England’s quarterly bulletin on Friday will include commentary on market developments and monetary policy operations.
But the real news will emanate from the US and whether or not the Federal Reserve will raise interest rates. The consensus is not, but, we may very well be surprised, which will see major movements in currencies happen very quickly.
The euro zone
Friday was a busy day for euro zone data. There was a surprise for Germany when the Wholesale Price Index (WPI), the measure of the price change of goods sold by wholesalers, came in at -0.8 percent against the forecast 0.2 percent. The French current account figure also failed to hit the mark; this was released at -0.4 billion euros compared to the 0.6 billion euros expected, and much worse than the 0.8 billion euros for last month. Italy produced the greatest shock posting year on year growth of 2.7 percent (forecast to be 0.9 percent and a previous of -0.3 percent) in its Industrial Production Index, a measure of changes in output for the manufacturing, mining and utilities sector.
This week we continue to see a steady flow of euro zone data with euro zone industrial production data on Monday, Tuesday there is trade balance data, on Wednesday inflation figures and finally on Friday current account information, all of which will give a good overview of the state of the euro zone economy. But the main attention this week is expected to be on Thursday’s US Federal Open Market Committee statement and federal rate announcement; broad market assumption is that an initial rate hike will take place by the end of this year, or early next year not at this meeting.

The Federal Reserve
The US dollar weakened further on Friday, thanks to the release of lower than expected consumer sentiment data, which measures consumer confidence, fell to its lowest level in almost a year. Producer inflation data was also released, showing a better than expected figure — but this did not affect the markets.
We should be in line for a busy week for the US dollar. US retails sales data is released on Tuesday with the expectation that this will drop compared to the previous month. Following this release will be Industrial production data, expected to decline for the first time in three months. Consumer inflation is also expected, and is forecast to show a negative figure for the first time in nine months — demonstrating the knock on effect on America from the struggling Chinese economy. Focus will be on Thursday, however, with the US Federal Reserve interest rate decision, with recent reports suggesting the Federal Reserve may keep rates on hold as they worry about the state of the global economy and how this will affect the US economy.

The Japanese yen
After steadily dropping off against the US dollar last week, the Japanese yen looks set for another busy week ahead. The focus will largely be on Tuesday, where the Bank of Japan have scheduled a press conference alongside the release of its latest monetary policy statement.

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