The focus next week will be on the core PCE inflation data in the US, which could confirm market expectations of two Fed rate cuts by the end of 2024. Despite the Fed’s dot plot indicating only one rate cut by the year-end, softer-than-expected CPI numbers and weak retail sales figures have led investors to believe that more cuts might be on the horizon. Fed funds futures are currently pricing in around 50bps worth of reductions by the end of the year, with a 70% probability of the first cut in September.
The core PCE price index for May, along with personal income and spending data, will be released on Friday. Any downward trends in the core CPI for the month could pose risks to spending, especially considering the weakness in retail sales. However, income levels may see improvement, as indicated by better-than-expected average hourly earnings. If the data continues to show cooling consumer demand, expectations of two quarter-point cuts by the Fed may solidify, potentially leading to a negative impact on the US dollar.
In Japan, the Summary of Opinions from the recent BoJ decision will be released on Monday, with Tokyo CPIs for June coming out on Friday. While the BoJ decided to keep interest rates unchanged at the last meeting, Governor Ueda mentioned the possibility of rate hikes in July. However, market pricing suggests a decreased probability of a July hike, which could impact the yen’s performance. Clarity on the likelihood of a July hike from the summary of opinions could influence the yen’s direction.
Canada’s CPI numbers are also due next week, following the recent interest rate cut by the BoC. Governor Macklem hinted at further rate reductions if inflation continues to decrease. Should inflation data reveal a continued downward trend, expectations of another rate cut in July may increase, putting pressure on the Canadian dollar.
Australia is set to release its monthly CPI prints for May, with inflation in the country proving to be more resilient compared to other major economies. RBA policymakers have discussed the possibility of rate hikes, and if the CPI data confirms this stance, the Australian dollar could remain supported.
Overall, next week’s economic data releases across different countries could provide insights into central banks’ policy decisions and impact currency movements in the forex market. Traders will closely monitor these developments to adjust their positions accordingly.