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Monday is going to be a quiet day for the FX market with no significant event on the calendar.

On Tuesday, the focus will be on the Bank of Japan’s monetary policy announcement and New Zealand’s inflation data. Wednesday will bring the Flash Manufacturing PMIs and Flash Services PMIs for the Eurozone, the U.K. and the U.S., while the Bank of Canada will announce its monetary policy.

The Eurozone will get the Main Refinancing Rate, the Monetary Policy Statement and the ECB Press Conference on Thursday, followed by the Unemployment Claims, Core Durable Goods Orders m/m, Durable Goods Orders m/m and New Home Sales data in the U.S.

On Friday, Japan will publish the Tokyo Core CPI y/y and Monetary Policy Meeting Minutes while the U.S. Core PCE Price Index m/m, Personal Income m/m, Personal Spending m/m, and Pending Home Sales will close out the week.

At this week’s meeting the BoJ is expected to keep its YCC policy and negative short-term rate unchanged. The inflation is anticipated to cool down in January partly driven by the cautionary mood following the recent earthquake, according to ING analysts. The “Tokyo CPI inflation is likely to decelerate to 2.2% y/y in January with government subsidies on energy bills and a high base last year contributing as well,” they said.

In Canada, the BoC is likely to maintain a hawkish tone and keep its policy rate at 5%. Due to recent concerns over inflation data in Canada, the Bank is expected to leave the door open for further rate hikes if necessary. In their latest comments, BoC policymakers acknowledged that economic growth is slowing, and they suggested that interest rates are ‘restrictive enough.’ However, Governor Macklem emphasized the need for a couple of months to observe progress on inflation deceleration before considering rate cuts. The core inflation data published in December did not align with the Bank’s expectations.

At this meeting, the focus will be on the BoC’s updated economic projections. A forecast for a more gradual return of CPI inflation toward the 2% target is likely to be interpreted by market participants as a hawkish signal.

Analysts believe that even if inflation runs hot again, there are limited prospects for further rate hikes, and they will be keen to see if the Bank hints at potential rate cuts. For now, expectations of rate cuts have been pushed back from March to April.

The ECB is expected to maintain its monetary policy unchanged and its Deposit Rate at 4.0%. The market’s focus at this meeting will be on any indications regarding potential rate cuts and the ECB’s commentary on the prevailing economic conditions. The economic forecast for the euro area lacks optimism, and progress toward desired inflation levels has not been achieved, making it premature for the ECB to signal rate cuts at this juncture.

In the U.S., the consensus for the Core PCE Price Index m/m is to increase by 0.2%, compared to the previous 0.1%. Personal Income m/m is anticipated to rise by 0.3%, down from the prior 0.4%, and Personal Spending m/m is forecasted to grow by 0.4%, up from the previous 0.2%.

Disposable income and discretionary spending are fueled by wage gains and consumers’ reliance on credit and financing despite recent moderation in the labor market. Strong consumption over the past few months has also pushed services prices higher, strengthening the PCE.

This article was written by Gina Constantin.


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