May’s consumer prices index (CPI) data is set to be the focus on Wednesday. After the overshoot in inflation in April, will there be a continued upturn in producer prices that limit further downward progress in the months and quarters to come? If headline and core CPI inflation fall more than is anticipated, that will increase the probability of a cut in the Bank of England Bank Rate in August, but it would be highly unlikely to alter the June meeting, which concludes on Thursday. The more interesting elements of Thursday's Monetary Policy Committee meeting are likely to be whether the vote split alters and how the statement might change since the May meeting. At the end of the week, May retail sales and public finances data might point in opposite directions, with government borrowing increasing, but retail sales rebounding. For the GBP, this could prove a challenging week, with the prospects of an August rate cut pressuring the pound against other major currencies, in my view. If the CPI figures overshoot, that could offer the GBP some support.

There are some important releases due in the US, after last week’s undershoot on consumer price and producer price inflation versus expectations. The focus will likely be on the US May retail sales and industrial production data, released on Tuesday, and both of these could undershoot expectations, in my view. There are some secondary survey releases due as US housing starts for May towards the end of the week, all of which could interrupt the US resurgence. However, with the USD less reactive to changes to interest rate differentials, and fresh highs having been reached in US equity markets last week, the downside risks for the dollar could be more limited than in some other major currencies, in my opinion.

The euro was under pressure last week, with politics, specifically French politics, dominating over a light data calendar. The released data was disappointing, with the April Euroland industrial production figures reporting a drop in output on a month-on-month basis. This week the focus is on survey figures, with June German ZEW data followed by Euroland provisional June manufacturing and services PMI indices. I think the risks are that these surveys perform better than expected, which could give the euro some support, but will politics dominate once again? That is the risk in my opinion.

Early on Tuesday morning the Reserve Bank of Australia (RBA) is expected to leave monetary policy unchanged, but unlike much of the rest of the world, the RBA might yet have to raise interest rates further, given the strength of parts of the economy and inflation overshoot. The central banks of Hungary and Chile are also announcing on Tuesday, and both are expected to reduce interest rates by 25 basis points to 7% and 5.75% respectively. On Wednesday expect the Bank of Brazil to ease by 25 basis points, and then on Thursday, Bank Indonesia should hike interest rates by 25 basis points ahead of the Swiss National Bank (SNB) meeting. Markets are pricing a greater likelihood than not of further SNB cuts, whereas economists’ consensus is for unchanged. I’d side with the markets on this, given that core CPI inflation is showing little sign of increasing in recent releases. There’s room for lower interest rates, in my opinion. Later on Thursday is the Norges Bank (Norway), which is in no hurry to reduce interest rates; indeed, the Norges Bank may signal a later start to its easing cycle. Lots to potentially influence the FX markets, in my view.

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