FX Week Ahead – Top 5 Events: UK Inflation Rate; Canada Inflation Rate; Powell Testimony; Japan Inflation Rate; German Ifo Business Climate

FX Week Ahead Overview:

• The coming week will offer more insights into weakening growth and record inflation around the globe.
• British, Canadian, and Japanese inflation data from May will keep markets focused on how central banks plan to bring down price pressures.
• Fed Chair Jerome Powell’s testimony to Congress this week comes just a few days after the Federal Reserve raised rates by 75-bps for the first time since 1994.

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

06/22 WEDNESDAY | 06:00 GMT | GBP Inflation Rate (MAY)

UK prices pressures remain well-above the Bank of England’s comfort level, and the upcoming slate of inflation data will do little to quell concerns. According to a Bloomberg News survey, the May UK inflation rate (CPI) is due in at +0.6% m/m from +2.5% m/m and +9.1% y/y from +9% y/y, while core inflation is expected at +6% y/y from +6.2% y/y. Just last week, the BOE’s Monetary Policy Committee promised to act more “forcefully” to combat multi-decade highs in price pressures. However, any evidence that inflation pressures have peaked could underscore the BOE’s balanced concerns with sluggish growth, which in turn could weigh on the British Pound.

06/22 WEDNESDAY | 12:30 GMT | CAD Inflation Rate (MAY)

Price pressures continue to rise in Canada, despite strong action by the Bank of Canada in recent weeks to tamp down a rapid rise in the cost of living. According to a Bloomberg News survey, the May Canada inflation rate (CPI) is due in at +1% m/m from +0.6% m/m and +7.4% y/y from +6.8% y/y, while core inflation is expected at +0.8% m/m from +0.7% m/m and +5.9% y/y from +5.7% y/y. The BOC’s June policy statement included the phrase “the Governing Council is prepared to act more forcefully if needed to meet its commitment to achieve the 2% inflation target,” and incoming May Canada inflation data could help spur speculation that another 50-bps rate hike when policymakers meet in mid-July.

06/22 WEDNESDAY | 13:30 GMT & 06/23 THURSDAY | 14:00 GMT | USD Fed Chair Powell Delivers Semi-Annual Monetary Policy Report to Congress

Fed Chair Jerome Powell will deliver his semi-annual testimony to the US House of Representatives and the US Senate on Wednesday and Thursday, a week after the June Fed rate decision that produced the first 75-bps rate hike since 1994. In the Fed’s Monetary Policy Report, released on June 17, it was noted that “the Committee’s commitment to restoring price stability – which is necessary for sustaining a strong labor market – is unconditional.” US inflation rates are holding near their highest levels in 40-years, which are likely to draw the greatest scrutiny among both Democrats and Republicans. Focus on acute inflation pressures could be the catalyst needed for US rates markets to price-in another 75-bps rate hike in July.

06/23 THURSDAY | 23:30 GMT | JPY Inflation Rate (MAY)

Japanese inflation rates continue to climb, thanks in part to a weak Japanese Yen and ever-climbing coal and oil prices (Japan imports over 90% of energy consumed). According to a Bloomberg News survey, the May Japan inflation rate (CPI) is due in at +2.6% y/y from +2.5% y/y and the core inflation rate is expected unchanged at +2.1% y/y. April’s rise of +2.5% y/y was the fastest rate since October 2014. Despite growing political consternation, the Bank of Japan doubled down (tripled down?) on its commitment to its QQE with yield curve control policy last week, and incoming inflation data could see Japanese bond markets come under renewed stress.

06/24 FRIDAY | 08:00 GMT | EUR German Ifo Business Climate (JUN)

European growth estimates continue to sag, no doubt tied to the Russian invasion of Ukraine. But the hangover from the coronavirus pandemic is likewise a contributing factor, and the lack of desire for more fiscal stimulus in the face of multi-decade highs in inflation rates suggests that stagflation conditions are setting in across the Eurozone. The June German Ifo business climate survey should showcase continued weak conditions in the Eurozone’s largest economy, which won’t do the Euro any favors as echoes of the Eurozone debt crisis grow louder amid a sharp rise in peripheral borrowing costs after the June European Central Bank rate decision.

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— Written by Christopher Vecchio, CFA, Senior Strategist