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FX Week Ahead – Top 5 Events: BOE, ECB, & Fed Speeches; Chinese Manufacturing PMI; US PCE Index

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FX Week Ahead Overview:

  • The final week of June will have central banks, inflation data, and supply chains in focus.
  • Remarks by BOE Governor Bailey, ECB President Lagarde, and Fed Chair Powell – all at 13 GMT on Wednesday – could prove to be the biggest source of volatility all week.
  • We may be looking at the beginning of the end of supply chain concerns out of China with the upcoming release of the Chinese manufacturing PMI.

For the full week ahead, please visit the DailyFX Economic Calendar.

06/29 WEDNESDAY | 13:00 GMT | GBP Bank of England Governor Bailey Speech

At their June meeting, the BOE’s Monetary Policy Committee promised to act more “forcefully” to combat multi-decade highs in price pressures. UK rates markets have responded in kind, dragging forward rate hike odds considerably in recent weeks: there are 50-bps hikes discounted for each of the next three meetings; and the BOE’s main rate is expected to rise to 2.827%, up from 2.099% in mid-May. Should BOE Governor Andrew Bailey choose to focus on UK growth concerns, however, then some wind may get taken out of the British Pound’s sails.

06/29 WEDNESDAY | 13:00 GMT | EUR European Central Bank President Lagarde Speech

Less than a week after the June ECB policy meeting, the Governing Council reconvened in order to calm down Eurozone sovereign bond markets. Peripheral bond yields, particularly those in Greece and Italy, began to widen out rapidly versus their core (e.g. German) counterparts, rekindling fears of a revitalized Eurozone debt crisis.Yet since the ECB’s cryptic and vague remarks about preventing fragmentation in bond markets, Greek and Italian bond yields have calmed down in enough manner to keep fears at bay. If ECB President Christine Lagarde can walk the line between keeping bond markets calm and talking up the potential for rate hikes to quell rising inflation pressures, the Euro should benefit.

06/29 WEDNESDAY | 13:00 GMT | USD Federal Reserve Chair Powell Speech

Fed Chair Jerome Powell’s remarks at his Congressional testimony last week made clear that the FOMC is fully committed to bringing down inflationary pressures – even if that means a recession is a side effect. But in context of this week’s data – the June US Conference Board consumer confidence reading, the final 1Q’22 US GDP report, and the May US PCE price index – the weakness of the US economy will be on full display. With Fed rate hike odds currently receding, any hint of a ‘less hawkish’ mindset from Fed Chair Powell could further impair the US Dollar.

06/30 THURSDAY | 01:30 GMT | CNY NBS Manufacturing PMI (JUN)

The Chinese economy has been on weak footing for months, as the misguided zero-COVID strategy remains in place. According to a Bloomberg News survey, the June China NBS manufacturing PMI is expected to come in at 48.6 from 49.6, signaling a faster pace of contraction. However, with China beginning to alter its zero-COVID strategy – hinting at a lower likelihood of lockdowns amid rising economic and societal concerns – it’s possible that this print could mark the beginning of the end of supply chain concerns. Any beat, however marginal, would be a welcomed development for the embattled commodity currencies – the Australian and New Zealand Dollars in particular.

06/30 THURSDAY | 12:30 GMT | USD PCE Price Index (MAY)

The Fed’s first 75-bps rate hike since 1994 came with a caveat: aggressive rate hikes would continue until US inflation pressures begin to abate. Yet the Fed’s preferred gauge of inflation, the US PCE price index, has already started to do just that. According to a Bloomberg News survey, consensus forecasts expected the headline PCE price index to drop to +6.2% y/y in May from +6.3% y/y, while the core PCE price index is due in at +4.8% y/y from +4.9% y/y. These would be the second consecutive monthly drop for the headline reading and the third consecutive monthly drop for the core reading. Receding price pressures beget a less hawkish Fed, which is negative for the US Dollar.

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— Written by Christopher Vecchio, CFA, Senior Strategist

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