FX Week Ahead – Top 5 Events: UK Manufacturing PMI; US Durable Goods Orders; German Ifo Business Climate; US PCE Index; Fed’s Jackson Hole

FX Week Ahead Overview:

• The August German manufacturing PMI, the August German Ifo business climate survey, and the September German GfK consumer confidence reading are all likely to point to a deteriorating growth environment for the Eurozone’s largest economy.
• The August UK manufacturing PMI should show further signs of economic slowdown as the UK economy moves closer towards stagflation,
• July US durable goods orders and the July US PCE index should be market moving, but not nearly as important as Fed Chair Powell’s Jackson Hole speech on Friday.

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

08/23 TUESDAY | 08:30 GMT | GBP Manufacturing PMI Flash (AUG)

The UK economy is moving towards stagflation and data due this week is likely to further the narrative that the boxes are being checked. The August UK manufacturing PMI is due in at 51.1 from 52.1, barely holding in expansion territory. Chances of a weak print persist as UK energy prices continue to skyrocket and UK inflation readings reach fresh multi-decade highs, leaving the Bank of England in a bind as the summer comes to an end. More weakness is likely ahead for the Sterling.

08/24 WEDNESDAY | 12:30 GMT | USD Durable Goods Orders (JUL)

The US economy revolves around consumption trends, given that approximately 85% of GDP is accounted for by the spending habits of businesses and consumers – 15% from business investment and 70% from consumer consumption. As such, the durable goods orders reportmake for an important barometer of the US economy. Durable goods are items with lifespans of three-years or longer – from refrigerators and washing machines to cars and airplanes. These items typically require greater capital investment or financing to secure, meaning that traders can use the report as a proxy for business’ and consumers’ financial confidence and health. With US inflation pressures moderating in July, it appears that spending habits stabilized (at least momentarily). According to a Bloomberg News survey, the July reading is expected to show a gain of +0.6% m/m after the +1.9% m/m gain in June.

08/25 THURSDAY | 08:00 GMT | EUR German Ifo Business Climate (AUG)

A trifecta of German data this week are likely to show a rapidly deteriorating economic outlook for the Eurozone’s largest economy. The August German manufacturing PMI on Tuesday is expected to sink further into contraction territory (48.2 expected from 49.3) while the September German GfK consumer confidence reading on Friday is due to show further erosion as well (-31.8 expected from -30.6). In between those two releases, the August German Ifo business climate survey on Thursday is forecast to decline to 86.8 from 88.6, the lowest reading in over two years (effectively since the early months of the coronavirus pandemic). Until European energy prices settle, there’s little reason to think the German economic outlook will improve, much to the Euro’s chagrin.

08/26 FRIDAY | 12:30 GMT | USD PCE Price Index (JUL)

The Federal Reserve’s back-to-back 75-bps rate hikeswere aggressive steps to try and arrest multi-decade highs in US inflation rates. Early – very early – evidence is that tighter monetary policy may be working. The Fed’s preferred gauge of inflation, the US PCE price index, appears ready to join the deceleration seen by the US consumer price index (CPI). According to a Bloomberg News survey, consensus forecasts expected the headline PCE price index to drop to +6.6% y/y in July from +6.8% y/y in June, while the core PCE price index is due in at +4.7% y/y from +4.8% y/y. Receding price pressures beget a less hawkish Fed (e.g. a 50-bps rate hike in September instead of a 75-bps rate hike), which is negative for the US Dollar.

08/26 FRIDAY | 14:00 GMT | USD Fed Chair Powell Speech at Jackson Hole

The Fed’s Jackson Hole Economic Policy Symposium will run from Thursday through Saturday, and if recent commentary from Fed policymakers is a guidepost, then traders should be expecting hawkish tones in unison. Certainly, markets seem to think that a Fed pivot is coming, given the market pricing is for only a handful of 25-bps rate hike equivalents the rest of 2022 before rate cuts materialize in 2023. But with US inflation rates persisting well-above the Fed’s comfort level, it should come as no surprise that Fed Chair Jerome Powell will likely push back against market pricing and deploy an aggressively hawkish tone on Friday. Anything less than a ‘whatever it takes’ tone from Fed Chair Powell may rekindle speculation around a less hawkish Fed, however.

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— Written by Christopher Vecchio, CFA, Senior Strategist