Forex Weekly Outlook: Central banks in focus

Central banks have played an important role in the attempt to stabilize financial markets in the wake of the Covid-19 pandemic. In the upcoming week, the ECB, Bank of Japan and Bank of Canada will make rate announcements. As well, GDP and inflation reports could have an impact on currency moves.

British Finance Minister Rishi Sunak presented a mini-Budget last week. It included a slash in VAT rates for the hospitality and food sectors and a suspension of a house purchase tax. As well, the mini-Budget has created programs to help youth unemployment.

The RBA maintained rates at 0.25%, where they have been pegged since March. There has been some speculation that the RBA might be under pressure to raise rates due to the sharp increase in the exchange rate. However, in its rate statement, the bank said that it had no plans to change its accommodative policy.

In Canada, the economy created 952.9 thousand jobs in June, easily beating the estimate of 700.0 thousand. This strong figure has raised hopes that the economic recovery is gaining steam.

In the US, the services sector showed a strong rebound in June. The ISM Non-Manufacturing PMI jumped to 57.1, up from 45.4 beforehand. This reading showed significant expansion. Unemployment claims continue to fall, albeit at a slow rate. Last week’s reading was 1.31 million, down from 1.42 million. The Producer Price Index disappointed in June. The headline read came in at -0.2%, while Core PPI declined by -0.3%.

1. Australian Employment Report: Tuesday, 4:30. The labor market has been a disaster in the wake of Covid-19. In May, the economy shed 227.7 thousand jobs, much worse than the forecast of 105.0 thousand. Analysts are projecting a strong rebound in June, with an estimate of 100.0 thousand.
2. British GDP: Tuesday, 6:00. The monthly GDP release made headlines last month, as the April release plunged by a staggering 20.4%, reflective of the severe economic conditions. Analysts are projecting a rebound in May, with a forecast of 5.0%.
3. British Inflation: Wednesday, 6:00. UK inflation started the year with inflation of 1.8%, but it’s been all downhill since then. In May, inflation slowed to 0.5%, down from 0.8% beforehand. Another reading of 0.5% is expected in the upcoming release.
4. US Inflation: Tuesday, 8:30. Consumer inflation has fallen sharply in the wake of the Cocvid-19 pandemic. CPI has fallen for three consecutive months, but analysts expect a strong rebound in June, with a forecast of 0.6%. The core reading is expected to post a small gain of 0.1%.
5. Bank of Japan Rate Decision: Wednesday, Tentative. The Bank of Japan is expected to maintain current monetary policy. Investors will be keeping a close eye on the tone of the bank’s rate statement.
6. Bank of Canada Rate Decision: Wednesday, 10:00. The Bank of Canada is expected to maintain interest rates at 0.25%, where they have been pegged since March. Canada’s economy is recovering slowly from Covid-19, and investors will be looking at the rate statement to see what is the bank’s view of the economy.
7. Chinese GDP: Thursday, 2:00. China’s economy contracted by 6.8% in Q1 reflecting the devastating impact of the coronavirus pandemic on the world’s second-largest economy. Better news is expected in Q2, with an estimate of 2.2%.
8. British Employment Report: Thursday, 6:00.  Unemployment has rocketed in the wake of the Covid-19 pandemic. In May, unemployment rolls fell to 528.9 thousand, down from 856.5 thousand beforehand. Wage growth fell from 2.4% to 1.0% and is expected to contract by 0.4%. The unemployment rate has hovered at 3.9% for two months in a row. It is projected to rise to 4.1%. 
9. French Final CPI: Thursday, 6:45. France continues to post soft inflation numbers. The initial read of -0.1% in June is expected to be confirmed in the final release.
10. US Unemployment Claims: Thursday, 8:30. Jobless claims continue to slowly drop and the upcoming figure is expected at 1.25 million, down from 1.31 million a week earlier.
11. ECB Rate Decision: Thursday, 11:45. The ECB is expected to maintain interest rates at a flat 0.00%. Investors will be keenly interested in the rate statement, given the severe economic conditions gripping the eurozone.
12. Eurozone Inflation: Friday, 9:00. In May, the headline reading came in at 0.1%, down from 0.3% a month earlier. The estimate for June stands at 0.3%. The core read is expected to come in at 0.8%, after two straight readings of 0.9%.