UK and US data in focus as China celebrates Lunar New Year

After a busy period of central bank decisions, the week just gone has seen markets take a breather, aided by a light data calendar and little new information forthcoming from policymakers. The only US specific event of note were 2023 CPI revisions, something that had been flagged by Chair Powell as a notable risk to the Fed’s inflation outlook. Even that proved something of a damp squib when it was ultimately released, with minimal revisions to last year’s figures meaning the dollar ended the week only fractionally above where it started. This left the focus for G10 FX squarely on the Antipodes and Canada this week. In Australia, it was the RBA that took centre stage with a hawkish hold in rates, while in New Zealand the focus was on jobs data which offered a more inflationary indication than markets had anticipated. Canada too received a labour market report, though this was much less clear cut in our view. Whilst headline indications that unemployment fell are suggestive of a stronger economy, the details of the report arguably said the opposite. Outside developed markets, the National Bank of Poland held rates to very little surprise, whilst the Czech National Bank caught markets off guard with 50bp of easing. Mexico also saw some action too, with Banxico also keeping rates on hold, and likely to continue to do so for some time yet in our view.

Next week the focus will return to G10 currencies as a string of key data releases are set to be delivered, while a number of EM markets close for the Lunar New Year holiday. A major focus is likely to be the UK, as a fluke of scheduling means that all major official economic data series are set to be released next week. In addition, Swiss inflation and Australian jobs readings are also due to be published, but US data is arguably set to steal the limelight, with the release of January’s CPI. That said, we suspect they could be less impactful than would have been expected in advance of January’s Fed meeting. Back then this print was seen as likely to be the deciding factor on the chances of a March rate cut by markets. But with Fed Chair Powell killing that prospect, now the emphasis for markets has shifted out to May. Therefore, while the data will still be closely watched, and we suspect land a little stronger than expected, any upside move by the dollar in response could find itself muted next week.

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Authors: 

Simon Harvey, Head of FX Analysis

María Marcos, FX Market Analyst

Nick Rees, FX Market Analyst

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