The European Central Bank (ECB) is set to conclude its two-day policy meeting on Thursday. It is not expected to make any changes to interest rates after a 25 basis point cut last month. The decision to cut rates in June was slightly controversial as policymakers had to act before all the data was in. Inflation and wage growth had increased just before the meeting, which was not ideal for the Governing Council. However, the ECB justified its decision by highlighting the risk of undershooting its inflation target if it waited too long.
Looking ahead, markets are uncertain about a potential third rate cut, with some expecting at least one more cut in 2024. The ECB is likely to keep rates unchanged this week and reassess the situation in September. The upcoming ZEW economic sentiment survey from Germany and the final Eurozone CPI estimates for June will also be important indicators to watch.
In the UK, the British pound has been rallying in July, partly due to a softer US dollar and Labour’s victory in the general election. Despite headline inflation meeting the Bank of England’s target, services inflation remains high at 5.7%. Next week’s updates on inflation, employment, and retail sales could determine whether there will be an August rate cut. Any further moderation in inflation and wage growth could lead to a rate cut, impacting the pound.
In the US, the Federal Reserve is not rushing to cut rates, but there is growing confidence in a September cut. Retail sales figures on Tuesday will provide insight into consumer spending, which appears to be slowing. Manufacturing gauges and other data releases throughout the week will also be closely monitored.
China’s economy is expected to have slowed in the second quarter, with GDP growth forecasted to ease from the first quarter. The ongoing trade tensions and domestic challenges have weighed on investor and consumer confidence. Weak GDP numbers could impact market sentiment and risk-sensitive currencies.
In Canada, Japan, and New Zealand, upcoming CPI data will be crucial for rate cut expectations. The Bank of Canada and the Reserve Bank of New Zealand will be closely watching inflation figures to assess the need for rate adjustments. In Japan, CPI numbers will provide insights into the possibility of a rate hike at the upcoming Bank of Japan meeting.
Overall, global economic data releases and central bank decisions in the week ahead will be closely watched by investors and traders for potential market implications.