Fundamental Comment

Economic Week: Fed minutes, US inflation data

Fed minutes, US inflation data in focus

This week, financial markets will put the minutes of latest Federal Reserve policy meeting under scrutiny, especially after a number of major central banks have disclosed the need to adopt tight monetary policies to support their economies.

The US inflation reports, specifically the consumer price index, may also be relevant because of the direct impact on monetary policy decisions set by the Fed. 

Dollar’s direction will depend on interest rate outlook

The U.S. dollar will undergo serious tests as this week's Fed minutes will be announced, where investors are expected to keep their eyes on the details of the vote by Federal Committee members after the possibility of raising interest rates was noted.

The minutes could reveal how far Fed members were inclined to cutting interest rates, which may give an indication whether the Fed would raise interest rates by the end of this month.

Fed Chairman Jerome Powell is also due to testify before the House Financial Services Committee and the Senate Banking Committee.

As for economic reports, the US will release a number of reports that include unemployment benefits, but the inflation report may be of great interest as it largely reflects the possibility of slashing or holding interest rates.

The consumer price index may point to a 0.1 percent rise in June and a retreat to 1.7% from 1.8 percent year-on-year.

It should be noted that any developments or related to the trade dispute between the U.S. and China would affect the movement of the dollar.

Top representatives of the United States and China will restart talks next week, White House Economic Adviser Larry Kudlow told reporters last week.

Euro to follow the general market sentiment

The euro is likely be affected by the general market sentiment this week due to the absence of significant economic data from the eurozone.

Industrial production data from a number of major euro-area countries will be released, but the impact of the reports on the euro movements may be limited.

In addition, eurozone finance ministers will convene to discuss important issues that usually include financial issues such as euro support mechanisms and government budgets.

Last but not least, the minutes of the ECB's latest monetary policy meeting will give an in-depth look at the economic conditions that influenced the decision to hold interest rates.  

Pound aims to narrow losses ahead of important reports

The Pound Sterling fell last week as fears of a UK exit from the EU without a deal continued, noting that fears have grown since the resignation announcement of outgoing Prime Minister Theresa May.

The UK will release a parade of economic indicators, including industrial production, trade balance and monthly gross domestic product (GDP) for the month of May.

Commodities face serious tests

Precious-Gold rallied again towards its highest level in six years last week, but prices had found resistance at $1437 an ounce.

This week, gold is likely to depend on the markets’ action after the Fed minutes and meeting Powell's testimony, which will impact on the US dollar that remains the most influential factor in weighing on gold prices.

Crude oil prices, on the other hand, fell last week, despite OPEC agreement to extend production cuts, as the decline in US crude inventories indicated a drop in demand for oil in the United States amid signs of weakening economy.

The US government EIA report due on Wednesday may show US crude inventories plunged by 2.96 million barrels in the week ended July 5, which could ease some of the negative pressure on oil prices.

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