Week Ahead: US Inflation Data May Decide When Fed’s Tapering Starts

The first full week of October was quite exciting, but more interesting reports and events are scheduled for the week ending October 17, which will provide great opportunities for forex traders.

Wednesday will be the most important day of the week, as the US will publish inflation data and the Fed’s Federal Open Market Committee (FOMC) will release its meeting minutes, while the UK will provide an update on its economic growth.

Here are the most important events that could trigger higher volatility in the respective pairs:

  • Tuesday – the UK’s Office for National Statistics (ONS) will release the Claimant Count Change report and the Average Earnings Index.
  • Wednesday – the UK’s ONS will release GDP data.
    The US Bureau of Labor Statistics will release the Consumer Prices Index (CPI) and Core CPI for September.
    The Federal Reserve will publish the minutes of its latest meeting.
  • Thursday – on Wednesday night, Australia will publish employment change data and the unemployment rate.
    The US Labor Department will release its weekly report on initial jobless claims.
    The Energy Information Administration will publish the US Crude Oil Inventories report, which is released on a weekly basis as well.
  • Friday  The week will end with retail sales data (including core retail sales) for September released by the US Census Bureau.

US Inflation to Return to YTD High

The US inflation data scheduled for Wednesday will be important, as the Fed may consider it when deciding whether to start reducing its bond-buying program in November. Most economists expect inflation to maintain high, which will open the door for the Fed’s tapering to begin next month rather than being delayed for December. After a decline to 5.3% in August, analysts anticipate that the consumer price index had rebounded to the 13-year high level of 5.4% recorded in July, especially given the surge in oil and gas prices.

https://tradingeconomics.com/united-states/inflation-cpi

If inflation figures edge higher and exceed forecasts, investors may start to price in an earlier interest rate hike from the Fed than everyone expects today. Anna Wong of Bloomberg said:

“Stubbornly high inflation means risks appear to tilt toward an earlier hike than our current baseline of a 2023 move. However, our analysis of the views of voting FOMC members in 2022 suggests that the majority prefers a somewhat more accommodative timeline than implied by the committee median. After Rosengren’s early resignation, we think four 2022 voters currently favor a hike, against six for a hold next year.”

While surging energy prices are raising concerns of long-lasting inflation, the Fed continues to insist it is a temporary issue caused by pandemic-related factors. Cleveland Federal Reserve Bank President Loretta Mester said on Thursday that both supply-side and demand-side factors were pushing the US inflation higher, but most of the recent price changes may have to do with pandemic-related shifts that could fade away over time.

On Wednesday, any major deviation from analysts’ forecasts will cause increased volatility in dollar-related pairs. 

 

 

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