Global Financial Markets: Key Updates on Currency, Inflation, and Policy
Weekly Financial Market Highlights
Aug 7 (Reuters) - No time for a break. Even in the middle of August, there is plenty of market news to watch.
There's possibly more U.S.-Japanese intervention to support the yen, key economic data, and, whether the U.S. will accept an emerging interim deal being negotiated by Iran and Oman that would give Tehran control of the Strait of Hormuz.
Here's all you need to know about the coming week in financial markets from Amanda Cooper, Dhara Ranasinghe and Alun John in London, Lewis Krauskopf in New York and Rae Wee in Singapore.
1/ The Angel from My Nightmare: Yen Intervention and Currency Policy
A currency languishing at four-decade lows — making fuel imports more expensive during an energy shock — is a nightmare for any policymaker. Right now, that policymaker is in Japan.
Recent U.S.-Japanese Currency Moves
Cue Scott Bessent and a well-timed photograph of the U.S. Treasury Secretary's "to-do" list mentioning purchases of yen. Coupled with a rare joint U.S.-Japanese intervention to stem yen weakness, it may have eased Tokyo's concerns.
Job done? Not quite.
Unanswered Questions for FX Traders
FX traders still have plenty of unanswered questions.
First, will policymakers signal that Japan's central bank is preparing a September rate hike to reinforce the yen's rebound? Then there is the bigger question over the use of euros rather than dollars in the U.S. intervention.
Some analysts say that suggests the U.S. Treasury does not want bond market strains worsened by foreign central banks selling Treasuries to fund currency-support operations. The debate over the resilience of the dollar's reserve-currency status is far from over.
2/ Fudge It: Gulf Conflict and Oil Market Implications
Investors are clutching at yet another deal to end the Gulf conflict and ensure safe passage through the Strait of Hormuz. This time, the talks involve Iran and Oman, with no U.S. involvement, or sign-off, so far.
Strait of Hormuz and Geopolitical Risks
But with the conflict entering its 24th week, expectations that any agreement will hold remain modest. Yemen's Iran-backed Houthi militias have attacked Saudi Arabia and targeted tankers in the Red Sea, another key route for Gulf oil exports.
U.S. Political Pressure and Inflation
With less than five months until midterm elections, the U.S. president wants a deal. Gas prices remain stubbornly above $4 a gallon and, while inflation is not as bad as feared, it's a problem with voters.
For now, optimism about earnings growth and the potential for AI-driven productivity gains may calm investors and encourage acceptance of a near-term fudge for the strait.
3/ Spotlight on Inflation: U.S. Economic Data
U.S. inflation data on Wednesday could add to growing pressure on the Federal Reserve to raise interest rates.
Key Inflation Indicators
Economists polled by Reuters expect the July consumer price index to rise 3.4% year on year. Core CPI, which excludes volatile food and energy prices, is forecast to increase 2.5% annually.
Producer price data due a day later will provide a fuller picture of inflation. CPI and PPI figures in the previous month were softer than expected, but inflation remains above the Fed's 2% target.
Upcoming Economic Releases and Fed Policy
Retail sales data on August 14 cap a busy week for economic releases.
The Fed held rates steady last month, but three policymakers dissented in favour of a hike. Markets are pricing in roughly even odds of a hike at the Fed's next meeting in September.
4/ Tightening Cycle Over? Central Bank Decisions
Things are different down under.
Reserve Bank of Australia Outlook
The Reserve Bank of Australia is expected to leave rates unchanged on Tuesday as policymakers assess whether the three hikes delivered this year have done enough to tame inflation.
Recent data showed consumer prices rose at a slower pace in the June quarter, a day after RBA Governor Michele Bullock said the central bank stood ready to raise rates again if needed.
Norges Bank and Global Rate Trends
Analysts suspect the RBA to maintain a hawkish stance.
Also in the tightening camp, Norges Bank meets on Thursday but is similarly expected to keep rates on hold, after Norway's core inflation slowed in June.
5/ An Economic Burnham Bounce? UK and Euro Zone Growth
New Prime Minister Andy Burnham will be hoping for good news when Britain publishes GDP data on Thursday for both the second quarter and June.
UK GDP and Retail Sales Trends
The monthly figures could see a bounce. June retail sales were unexpectedly strong, helped by spending linked to the soccer World Cup and hot weather.
Lower energy prices that month during the short-lived U.S.-Iran deal could also have helped.
Quarterly Growth and Euro Zone Comparison
However, the quarterly figure could be less encouraging, as strong growth in the first three months of the year fizzled out in April and May.
Still, Burnham, who took power in July, will be hoping for a surprise similar to that seen in the euro zone. Preliminary data showed the bloc expanded faster than expected in the second quarter. An updated euro zone estimate is also due Thursday.
(Graphics by Kripa Jayaram. Compiled by Alun John. Editing by Mark Potter)
