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Inflation Data in Focus in the Week Ahead

25 May 2020 By Mircea Vasiu

The week ahead is marked with speeches by central bankers – Poloz in Canada on Tuesday, Lagarde in Europe on Wednesday, and Powell in the United States on Friday. Yet the key data to impact the markets is the Personal Consumption Expenditure (PCE) in the United States. As it will show the changes in prices of goods and services, which represents the preferred method of the Fed for measuring inflation. 

The road to Friday’s key inflation data starts today with the consumer sentiment indicator for Germany. During the US session, volatility is likely to be subdued as a result of the Memorial Day holiday, so do not expect much volatility  in financial markets.

BOC Poloz Testifies

The Bank of Canadas’ (BOC)’ Governor Poloz testifies on Tuesday before the Senate Committee on National Finance. The hearing has significant importance for at least a couple of reasons.

First, BOC recently started a bond-buying program, following the steps of other major central banks around the world. Therefore, details about BOC’s view of the program and its impact so far may move the Canadian Dollar (CAD).

Second, Poloz’s mandate ends this upcoming June. BOC’s Governor since 2013, his mandate expires next month, and he may express some views about his legacy at the helm of the BOC and the path forward. For example, when Mario Draghi left the ECB in late 2019, he set the monetary policy course for many months ahead – albeit Lagarde made changes as the coronavirus crisis broke in Q1 2020.

Lagarde to Take Questions at the European Youth Event

On Wednesday, Christine Lagarde, the ECB Governor, delivers a speech at the European Youth Event. As questions are expected from the virtual audience, the Euro pairs may fluctuate more than usual.

The topic deals with how the ECB responds to the coronavirus crisis – a delicate subject considering the fact that the ECB asset purchase program was challenged recently by the German constitutional court.

PCE and Powell to Close the Week

The week ends with the most important economic data – the PCE in the United States. The forecast shows a decline of -0.3%, following another decline in the previous month of -0.1%.

Considering the low oil prices which made their way into the economy gradually, lower inflation, and, perhaps, deflation may be the theme in the United States for the period ahead. This will further put pressure on the Fed, with negative interest rates back on the table.

Fed’s Powell speech on Friday closes the trading week. Scheduled after London’s closing, Powell’s discussion at Princeton’s Griswold Center for Economic Policy Studies is a must-watch for traders considering over-the-weekend positioning.

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