As Chinese policymakers have opted for more stimulus amid stresses in credit markets in recent months, we have seen market participants watch Chinese inflation figures as a proxy for domestic demand. Declines in price levels have been viewed in the context of serious stresses on domestic consumption and economic growth. With the Chinese Yuan having materially weakened on a year-over-year basis versus the US Dollar, odds are that incoming inflation data shows faster price pressures in January. The risk is asymmetrical here: a strong inflation reading could ease concerns only somewhat; while disappointing inflation reads will fan the flames of market uncertainty ahead of this week’s G20 meeting. As a liquid and transparent currency, the Australian Dollar should prove highly sensitive to the data.
Pairs to Watch: AUD/JPY, AUD/USD, USD/CNH
02/14 Tuesday | 09:30 GMT | GBP Consumer Price Index (JAN)
Tuesday’s latest UK inflation reading is expected to show that consumer prices rose by +1.9% y/y, the third successive uptick in UK prices and back to levels last seen in June 2014. Analysts expect higher fuel prices to continue to feed through, while higher food prices will also be of note. The British Pound’s post-Brexit weakness will also force manufacturers, retailers and service companies to lift their prices due to higher import prices. Looking ahead, UK inflation is expected to be capped later on in the year as Brexit negotiations weigh on investment decisions, while any slack in the labor market will ease domestic price pressures, especially wage costs. Bank of England Governor Mark Carney has repeatedly said that he will allow only a limited overshoot of the central bank’s around +2% inflation target in order to get the UK economy on a strong footing.
Pairs to Watch: EUR/GBP, GBP/JPY, GBP/USD
02/14 Tuesday & 02/15 Wednesday | 15:00 GMT | USD Fed Chair Yellen Testifies in House, Senate
