US inflation, Powell’s testimony, and retail sales data are due

The week ahead is full of important economic events that may move financial markets: Fed’s Chair Powell testifies, and inflation and retail sales data are due. 

Following a relatively calm first trading week of the year, the week ahead is full of important economic events and data, mostly from the United States. After the NFP report last week showed a tight labor market, all eyes are on the Fed.

Goldman Sachs now sees four rate hikes in 2022 and ten hikes by the third quarter of 2024, well above the market consensus. Moreover, if the Fed starts doing quantitative tightening too, the financial picture changes drastically compared to last year.

Jerome Powell testifies       

Traders will find out more about the Fed’s intentions this week. Tomorrow, the Fed’s Chair will testify in front of the Senate Banking Committee on his renomination for a new term at the helm of the Fed.

As the Fed had shifted its approach to monetary policy by viewing inflation as not transitory anymore, traders will look at any hint that might reveal the next step. Earlier today, Richmond Fed’s Barkin said that a March rate rise is conceivable, and so confirmation from Powell will make it a certainty.

US Core CPI is expected to increase by 0.5% MoM

One day after the testimony, US inflation data is due. The market expects the Core CPI to increase by another 0.5% MoM, and a higher rate would be hawkish for the US dollar as a March rate hike becomes certain.

Many economists expect inflation to have peaked or to peak soon. If that is the case, this week’s data will offer market participants new clues about the upcoming changes in the trend, if any.

Core Retail Sales on Friday are seen at 0.2% MoM

On Friday, the US Retail Sales for December will reveal the state of the US consumer. The forecast for the Core Retail Sales is an increase of 0.2%, and a stronger number will bode well for the Fed’s hawkish view of the economy.

All in all, the week ahead is an important one for the US dollar. After the timid start of the new trading year, the US dollar may rally on a hawkish testimony and positive economic data.  

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