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You will likely recall that some rather heavy-hitting movement in the US bond market unfolded last week; the short-dated 2-year US Treasury yield rallied to an eye-popping 16-year high of 5.12%, as well as the benchmark 10-year US Treasury yield advancing to 4.08%, after Thursday’s bumper ADP employment release. Despite yields rallying, the Dollar Index ended the week on the back foot, which could simply reflect the strength in the euro, the British pound and the Japanese yen (combined, all three currencies control circa 83% of the weight in the US Dollar Index). I added a technical view of the US Dollar Index below, which suggests a medium-term bearish viewpoint.
Wednesday will be a busy one this week, and US inflation (CPI) data will be front and centre at 1:30 pm GMT+1. YoY, headline inflation is expected to slow to 3.1% in June, down from 4.0% in May. YoY core inflation (that is, inflation excluding food and energy) is also expected to cool to 5.0% in June, 0.3 percentage points lower than 5.3% in May. On a MoM basis, consumer prices are expected to increase 0.2 percentage points to 0.3% for June, up from 0.1% in May (while MoM core inflation is anticipated to slow to 0.3%). Although softer inflation is welcomed, it will unlikely alter the chances of a Fed hike this month, though it may adjust longer-term interest-rate expectations.
Wednesday also welcomes rate decisions from the Reserve Bank of New Zealand (RBNZ) at 3:00 am GMT+1 and the Bank of Canada (BoC) at 3:00 pm GMT+1. The RBNZ, following May’s 25bp rate increase, is expected to leave the Official Cash Rate on hold at 5.50%, while markets are pricing in a 70% chance that the BoC will increase the Official Overnight Rate again by 25bps to 5.0% (you may recall that June’s meeting defied expectations and saw a 25bp hike amid persistent inflationary pressures; this followed a five-month break in policy firming).
Thursday’s US PPI inflation (Producer Price Index) release is also an important economic data point this week at 1:30 pm GMT+1. The consensus heading into the event is for producer prices to have rose 0.4% in the twelve months to June, down from 1.1% in May (core inflation is expected to slow to 2.7% YoY).
Additional events to be conscious of this week are UK data on Tuesday at 7:00 am GMT+1, that is, jobs data and average earnings, and US UoM consumer sentiment data on Friday at 3:00 pm GMT+1. You may recall that the annual growth in wages in the three months to April (excluding bonuses) increased to 7.2%, up from 6.7%, which marks the largest increase on record, with total pay (including bonuses) up 6.5% (from 6.1%). This week’s wage numbers and the inflation release on 19 July are key ahead of the Bank of England (BoE) rate decision on 3 August (markets are pricing in a 70% probability of a 25bp hike, following June’s surprise 50bp increase).
G10 FX (5-Day Change):
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