Despite the temporary shock of lower-than-expected inflation in the US, the Fed decided to leave interest rates unchanged, the highest level since the 2008 crisis. Jerome Powell, the Fed chairman, repeatedly said that "we need to have more data to get more certainty". This is a kind of déjà vu, as he used the same terms at the previous meeting. The market now estimates an 80 per cent probability of a first rate cut in September this year, and a 98 per cent probability of a second rate cut in December this year. In the coming week, currency investors can expect interest rate decisions in Switzerland and the UK. We will also learn the final May inflation reading from the euro area. The week will conclude with Fed Chairman Jerome Powell's speech to the US Congress, where comments on future interest rates may emerge.
Table of contents:
- Eurozone consumer price index (CPI) annualised (May)
- Interest rate decision in Switzerland
- UK interest rate decision
- Fed monetary policy report
Tuesday, 18.06, 11:00 CET, Eurozone consumer price index (CPI) annualised (May)
Preliminary data show that the annual inflation rate in the euro area rose for the first time in five months, reaching 2.6 per cent in May 2024, compared to 2.4 per cent in the previous month. Prices rose for energy and services, but fell for food, alcohol, tobacco and manufactured goods. Among the main euro area economies, inflation accelerated more strongly than expected in Germany (2.8 per cent), France (2.7 per cent), Spain (3.8 per cent) and Italy (0.8 per cent).
The current analyst forecast is for inflation to remain at 2.6 per cent.
Source: Tradingeconomics.com
A higher-than-expected reading could have a bullish impact on the EUR, while a lower-than-expected reading could be bearish for the EUR.
Impact: EUR/USD
Thursday, 20.06, 9:30 CET, interest rate decision in Switzerland
The Swiss National Bank cut its key interest rate by 25 basis points to 1.5 per cent in March 2024, the first reduction in nine years. The decision was taken after inflation fell to 1.2 per cent in February, holding for the ninth consecutive month within the target range of 0-2 per cent. The central bank took into account reduced inflationary pressures and the appreciation of the Swiss franc. The SNB forecasts average annual inflation of 1.4 per cent in 2024, 1.2 per cent in 2025 and 1.1 per cent in 2026. Economic growth is expected to remain modest, with a forecast of 1 per cent for 2024.
As Cinkciarz.pl currency analyst Bartosz Sawicki points out, "The franc is traditionally fed by eurozone concerns. The CHF is also supported by uncertainty over whether the SNB will cut interest rates on 20 June. CHF/PLN is approaching 4.55".
Analysts' current forecast is for interest rates to remain at 1.5 per cent.
Source: Tradingeconomics.com
A higher-than-expected interest rate could be bullish for the CHF, while a lower-than-expected interest rate could act bearishly on the CHF.
Impact: CHF/PLN, USD/CHF
Thursday, 20.06, 13:00 CET, UK interest rate decision
The Bank of England kept its main interest rate at 5.25 per cent on 9 May, its highest since 2008. At its last meeting, two committee members voted in favour of a 0.25 percentage point cut. The Bank lowered its inflation forecast while increasing its growth forecast. The BoE expects the bank rate to fall to 3.75 per cent by the end of the forecast period. The UK economy is expected to grow by 0.4 per cent in Q1 2024 and by 0.2 per cent in Q2, with lower demand than potential supply growth. CPI inflation is expected to return to the 2 per cent target soon, with the central bank emphasising the need for restrictive monetary policy (high rates and asset sales) to get inflation back to the 2 per cent target.
The current analyst forecast is for UK interest rates to remain at 5.25 per cent.
Source: Tradingeconomics.com
A higher-than-expected interest rate could be bullish for GBP, while a lower-than-expected interest rate could act bearishly on GBP.
Impact: EUR/GBP, GBP/USD
Friday, 21.06, 17:00 CET, Fed monetary policy report
Fed Chairman Jerome Powell will, as usual every six months, testify before Congress on the conduct of monetary policy and the economic situation. Key points from the latest testimony include:
- Inflation has declined but remains above 2 per cent.
- Unemployment remains low.
- FOMC maintains interest rate at 5.25-5.5 per cent.
- The Fed's reduction in securities holdings continues.
- GDP grows by 3.1 per cent in 2023.
- Financial stability is generally preserved, although some areas need monitoring.
- International economic conditions have deteriorated, especially in advanced economies.
Impact: EUR/USD
Grzegorz Dróżdż, CAI MPW, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
The above trade publication does not constitute an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No. 596/2014 of April 16, 2014. It has been prepared for informational purposes and should not form the basis for investment decisions. Neither the author of the publication nor Conotoxia Ltd. shall be liable for investment decisions made on the basis of the information contained herein. Copying or reproducing this publication without written permission from Conotoxia Ltd. is prohibited. Past performance is not a reliable indicator of future results.
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