Aniticipated Central Bank Policy and Economic Data: Will Traders Encounter Volatility in the Market?

Anticipated central bank policy and economic data:  will traders encounter volatility in the market?

Last week, the dollar index witnessed a 0.47% fall, amid bets that the Federal Reserve will pause its rate hike cycle next week. The currency dipped to the weekly lows of 103.295 after data showed that U.S. jobless claims raised more than expected in the latest week.

However, on the weekend, the currency bounced off two-week lows ahead of inflation data and the Federal Reserve’s interest rate decision next week for any new clues on how high the U.S. central bank is likely to hike rates.

With a 28,000-claim increase to a seasonally adjusted 261,000, the number of Americans making new claims for unemployment benefits soared to the highest level in more than 1-1/2 years last week.

Precious metals settled in green following the weakness in the dollar. Gold prices recovered from the weekly lows of 59333 and settled at 59821.00. Silver was shining more than 2.40%, prices recovered from the low of 71188 and settled at 73796.00.

Base metals found some ground, but gains remained limited amid dismal readings from China. Copper prices settled at 723.90 with a weekly gain of 1.09%. Zinc prices settled at 214.25, up 2.49%. Lead gained 0.08%, while Aluminum retreated 0.94% and settled at 205.65.

Crude oil dropped by 1.56% and settled at 5824 as compared to the previous week’s close of 5916.00. Prices plunged amid persistent fears that slowing economic growth will erode demand this year. With dismal readings from China further denting sentiment. However, prices found some ground after the White House denied a report that a nuclear deal between the U.S. and Iran was in the offering.

Important Economic Data and Events

The U.S. dollar, Bullion, Base metals and stock market are going to react strongly to the big event called, the Fed rate decision this week. The Federal Reserve may pause a rate hike cycle that started on 16 March 2022 from 0.25%-0.50%. Now it’s reached 5.25% till 3 May 2023. The market expects to hold this hiking cycle. However, some disappointing economic data is still making a hurdle for it. Before the policy is released, U.S. inflation readings will be key numbers to watch. Additionally, policy meetings for the European Central Bank and the Bank of Japan will take place, and data from China may support predictions for stimulus. Meanwhile, U.K. BOE Gov Bailey Speaks and GDP numbers also will reflect market momentum.

Tuesday – U.S. Inflation

U.K. Claimant Count Change will be set to release. The forecast is to have reduced by 21.4K from 46.7 K. The numbers will show a recovery in the jobless claims.

The U.S. will release the inflation report just before the Fed policy. It’s expected to rise by 0.2% on a monthly basis after a 0.4% increase in April. Core inflation, which strips out volatile food and fuel costs, is expected to rise by 0.4% month over month, almost unchanged.

The data will give clues that the Fed’s rate hikes are continuing to cool inflation without badly hurting growth.

Bank Of England Gov Bailey Speaks, his comments will be closely watched.

Wednesday – Fed decision day

The Federal Reserve’s interest rate decision will come out. With the expectation that the Fed will keep interest rates on hold at the conclusion of its two-day policy meeting.

According to several Fed officials, a halt shouldn’t be interpreted as evidence that interest rates have reached their high. But markets are already pricing in a further 25 basis point increase in July followed by a corresponding reduction in December.

Further, Recent economic data has indicated a mixed view of the U.S. economy. Inflation numbers moderated but are still above the central bank’s 2% target. While the economy added larger than forecast 339,000 jobs in May even as wage growth cooled.

The Fed’s decision also will depend on the impact on the economy from the banking turmoil. Furthermore, it has been claimed that stricter lending requirements can help control inflation, reducing the need for drastic monetary tightening.

A rate pause decision will expect to have a negative impact on the U.S. dollar or vice versa.

Thursday – China numbers and ECB Decision

China is to release May industrial production and retail sales data. Both numbers are expected to reduce after recent trade data indicated that the post-COVID economic recovery is losing momentum.

The European Central Bank will be released. The forecast is to hike by a quarter point, with a similar size increase expected to follow in July.

After several moves of 75 and 50 basis points, the ECB lowered the tempo of its rate increases to 25 basis points at its meeting in May.

According to ECB President Christine Lagarde, it is still too early to declare a core inflation peak. And reiterated that rates would need to be raised once more.

The inflation rate in the eurozone is at 6.1%, which is still higher than the ECB’s target of 2% but has decreased from a peak of 10.6% in October of last year.

On the same day, the U.S. will release Core Retail Sales m/m, Retail Sales m/m and Unemployment Claims numbers.

Friday- Bank of Japan Decision

The Bank of Japan is set to release its policy. It Is widely expected to make no changes to monetary policy at its meeting after recently appointed Governor Kazuo Ueda indicated that ultra-easy policy will remain in place until wage gains and inflation are stable and sustainable.