The Federal Reserve, Bank of England and Bank of Japan all decide policy in the same week that the US publishes GDP and core PCE inflation. All three are expected to hold, which pushes the market focus onto vote splits, statement language and the data itself. The question running through the week is whether higher energy prices are creating persistent inflation pressure or only a temporary headline shock.
The Federal Reserve is expected to leave rates unchanged at 3.50%-3.75% on Wednesday, although markets still assign some probability to a hike. That makes a hawkish hold the more relevant possibility — rates unchanged, but policymakers emphasizing that inflation risks remain elevated and further tightening is still possible. Because a hold is already the consensus, the US dollar may still strengthen if the statement, vote or press conference is more hawkish than expected.
Thursday concentrates the week’s event risk
Thursday brings the Bank of England decision, US GDP, core PCE and Eurozone GDP — the week’s largest concentration of scheduled releases. Analysts expect core PCE, the Fed’s preferred inflation measure, to rise approximately 0.17%-0.19% on the month, leaving the annual rate near 3.3%. The report arrives after softer CPI data but may show somewhat firmer underlying inflation, because PCE weights categories such as software and portfolio-management fees more heavily.
Growth may point the other way. The Atlanta Fed’s GDPNow estimate points to approximately 1.7% annualized growth in Q2, down from the first quarter’s 2.1% pace. Net trade may weaken headline growth, while business investment, inventories and defense-related spending may provide support.
Sterling and the yen hinge on votes, not headline decisions
The Bank of England is also expected to hold, with markets assigning a relatively low probability to an immediate hike. Its vote split and the revisions in the Monetary Policy Report may matter more than the decision, alongside whether the Bank pushes back against expectations for rate increases later in the year. Recent UK business surveys were stronger than expected and retail sales surprised to the upside, yet core inflation remains sticky.
Friday’s Bank of Japan decision is widely expected to hold the policy rate at 1.00% following the June increase. The Outlook Report may carry the more important information, as traders look for evidence that policymakers are becoming more confident that inflation expectations are firmly anchored and that additional rate increases may come more frequently than previously assumed.
China’s Politburo meeting closes the calendar
China’s mid-year Politburo meeting is expected to review first-half performance and set policy priorities for the remainder of the year, with markets watching for support aimed at domestic consumption, the property sector and advanced manufacturing. Later in the week, official PMI data are expected to show manufacturing activity close to the dividing line between expansion and contraction.
The Federal Reserve decision begins the week’s repricing, but Thursday’s US GDP and PCE reports may determine whether the initial market interpretation survives.
Source: Investinglive
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