Week Ahead – RBA meeting and Fed minutes to spice things up
XM Group | Jul 02, 2021 07:53AM ET
Exit strategy
The dollar has returned to life these past few weeks, as markets absorb the fact that the era of free money is coming to an end. The US economic engine is firing on all cylinders and Fed officials are worried that if they keep their foot on the gas too long, it could overheat. Better to step on the brakes a little now, than being forced to pull the handbrake later.
As such, it looks like the Fed will cut back on its asset purchases later this year. This tapering decision could be taken in September already, after a strong warning signal in August. Beyond that, markets are pricing in the first rate increase for late 2022, with another two in 2023.
But it’s not just the Fed. The central banks of the UK, Canada, and New Zealand have all taken baby steps in the same direction. In fact, markets think New Zealand will be the first to raise rates, with that move being fully priced in for February.
In the UK, monthly economic growth data for May are out Friday. Cable got knocked down lately as the dollar came back to life, yet the pound has been stable against the euro and yen. With a powerful recovery allowing the Bank of England to normalize faster than the ECB or BoJ, sterling could shine against the euro and yen over time.
Finally, China’s inflation stats for June will also hit markets on Friday. The focus will be on producer prices, which are seen as a proxy for global factory demand.
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