The ISM Services PMI, Fed Chair Powell, and the US Jobs Report will affect bets on an H1 2024 Fed rate cut, the US dollar, and market risk sentiment.
Monetary policy moves will draw investor interest, with the Bank of Canada and the ECB in the spotlight.
Economic data from China and economic forecasts and policy pledges will impact market risk sentiment.
On Tuesday, ISM Non-Manufacturing PMI numbers will kickstart the week for the US dollar. A pickup in service sector activity could delay the timeline for a Fed rate cut. However, investors must consider the sub-components, including prices and employment.
Labour market data will draw investor interest on Wednesday. The ADP employment change and JOLTs Job Openings reports will influence the Fed rate path. Tighter labor market conditions could support wage growth and fuel consumer spending. Upward trends in consumer spending could push consumer price inflation higher.
At end of the week, the labour market remains the focal point. Jobless claims, unit labor costs, and nonfarm productivity numbers are out (Thurs). While the numbers need consideration, the US Jobs Report (Fri) will have more impact. After the hotter-than-expected January report, another surge in nonfarm payrolls and higher wages could cut bets on a June Fed rate hike.
Beyond the numbers, Fed Chair Powell gives testimony on Wednesday and Thursday. Inflation, the US economic outlook, and Fed plans to cut interest rates will be likely topics for discussion.
Britain’s chancellor, Jeremy Hunt, will deliver his 2024 spring Budget on Wednesday, outlining the UK government’s spending plans and possibly announcing tax cuts ahead of a general election later this year. Traders will likely be following the announcement closely and watching for any potential market impact, particularly in areas such as UK gilts and GBP/USD. Plus, on Thursday the chair of the US Federal Reserve, Jay Powell, will appear before the Senate’s banking committee as part of a semi-annual hearing on the Fed’s monetary policy. While potentially headline-grabbing, the event is unlikely to be market-moving as Powell will probably refrain from saying anything new or different from what other Fed officials have said in the last couple of weeks.
Services PMIs will put the EUR/USD in the spotlight on Tuesday. The services sector contributes over 60% to the euro area economy. An improving service sector environment could ease fears of a Eurozone recession.
While the European Central Bank is expected to leave interest rates unchanged on Thursday, the more important aspect of the announcement and subsequent press conference will be the messaging on the future path of monetary policy. The market has already started to price in rate cuts from the ECB, with swap rates implying three to four ECB interest rate cuts this year, the first of which is expected in June or July. Depending on how the ECB plays its hand, there could be an impact on the euro.
If the messaging appears dovish, and markets perceive that the ECB will cut rates before the Fed, the euro may weaken against the dollar. The relative strength index (RSI) for EUR/USD is trending lower but has not reached oversold levels yet, suggesting that the euro may have further to fall. Additionally, the euro is at the upper end of its Bollinger Band, which is serving as resistance.
A move lower is unlikely to find support until the euro hits roughly $1.07, while a drop below $1.07 could lead to a decline to around $1.05. However, if the ECB comes across as more hawkish, EUR/USD could push above the upper Bollinger Band at $1.086 and advance back to $1.104.
On Wednesday, the Bank of Canada will influence near-term trends for the Loonie. Economists expect the BoC to leave interest rates at 5%. However, the markets expect the BoC to signal the timeline for an interest rate cut after a more dovish rate statement in January.
On Monday, capital spending numbers for Q4 will put the Japanese Yen in focus. The Japanese economy unexpectedly contracted in Q4. Upbeat numbers could influence sentiment toward the economy and bets on a Bank of Japan pivot from negative rates.
However, inflation numbers for Tokyo will likely impact the USD/JPY more. A pickup in inflationary pressures could fuel bets on the Bank of Japan exiting negative rates in April. Finalized Services PMI numbers will likely play second fiddle to the inflation report.
On Friday, household spending will also draw investor interest. The Bank of Japan is eyeing household spending to drive demand-driven inflation. A pickup in household spending would support bets on an April BoJ pivot from negative rates.
Beyond the numbers, Bank of Japan commentary also needs consideration. BoJ Board Member Nakagawa is on the calendar to speak on Thursday.
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