Fed Chair Janet Yellen’s Testimony Draws Attention, BOC Expected to Raise Rate

Buoyed by data showing a return to growth in the labor market, U.S. stocks and the U.S. dollar were higher after the close on Friday. At the close in NYSE, the Dow Jones Industrial Average jumped 0.44%, the S&P 500 index added 0.64%, and the NASDAQ Composite index soared 1.04%.

the U.S. dollar strengthened after the release of an upbeat report on jobs created in June, which suggests that economic growth remains robust that may bolster the Federal Reserve’s case to hike rate further in the second half of the year.

Data published by the Labor Department showed the U.S. created 222,000 new jobs in June. Thanks to accelerating hiring in the spring, the reading was the largest in four months and was well above analysts’ forecast calling for a rise of 175,000 jobs created last month.

While the hourly pay rose 0.2% to $26.25 an hour in June, the unemployment rate ticked higher to 4.4% from 4.3% in May (which was also the lowest jobless rate in 16 years) as more people entered the labor force in search of work.

In the week ahead, Federal Reserve Chair Janet Yellen is scheduled to testify on the economy to both houses of Congress. She is to set to deliver her semi-annual monetary policy testimony before the Senate Banking Committee on Wednesday and in front the House Financial Services Committee on Thursday. Text of the testimony will be released 90 minutes before she starts speaking.

Besides Fed Chair Yellen, there are a number of Fed speakers who are due to make public appearance in the coming week, including San Francisco Fed Chief John Williams, Fed Governor Lael Brainard, Chicago Fed President Charles Evans and Dallas Fed Chief Robert Kaplan.

The Federal Reserve’s minutes of the central bank’s June 13-14 policy meeting showed a widening gap in Fed policymakers’ outlook for inflation and how it might affect the future pace of interest rate hikes. While several officials wanted to announce a start to the process of unwinding their $4.5 trillion balance sheet by the end of August, others preferred to wait until later in the year.

According to Fed Rate Monitor Tool, futures traders are pricing in less than a 15% chance of a hike at the Fed’s September meeting and around 45% of odds for an increase in December meeting.

Turning to U.S. economic data, the Commerce Department will publish June inflation figures on Friday. The consumer prices are expected to advance 0.1 percent on a monthly basis in June while the core inflation is forecast to increase 0.2%. If confirmed, the core CPI would climb 1.7 percent on a yearly basis, heading back towards the central bank’s aim for core inflation after an unexpected decline in May.

At the same time on Friday, the Commerce Department will also publish data on June retail sales. The reading for retail sales is anticipated to rise 0.1% last month while core sales are forecast to inch up 0.2%. Consumer spending which accounts for as much as 70% of U.S. economic growth is a principal gauge for investors to assess the health of the world’s largest economy.

In addition to the inflation and retail sales reports, this week’s calendar also features U.S. data on   producer prices and initial jobless claims due on Thursday, as well as data on industrial production and preliminary Michigan consumer sentiment scheduled to come out on Friday.

Another major source of market guidance for the coming weeks shall be the US quarterly earnings season. The second-quarter earnings season will start next week with a batch of major U.S. banks JPMorgan Chase, Citigroup and Wells Fargo all reporting Friday.

Turning to the British Pound, the currency slumped to a one-week low against the dollar, with the pair GBP/USD down 0.61% to trade around 1.2890 on Friday. The U.K. Office for National Statistics will publish the monthly jobs report on Wednesday with analysts expecting the claimant count change to rise by 10,400 in May. The jobless rate is anticipated to hold steady at 4.6% while wage growth including bonuses is forecast to rise 1.8%.

Bank of England Chief Economist Andy Haldane and BOE Deputy Governor Ben Broadbent are both scheduled to speak Tuesday morning.

Elsewhere, China will publish data on June consumer and producer price inflation on Monday. The report on consumer prices is expected to point to a rise of 1.5% last month, while the reading of producer prices is forecast to increase by 5.5%.

The Asian nation is scheduled to release June trade figures on Thursday which are forecast to show that the country’s trade surplus widened to $42.4 billion last month from a surplus of $40.8 billion in May. Particularly, exports are forecast to have climbed 9.0% on a yearly basis in June, following a jump of 8.7% a month ago, while imports are expected to rise 13.1%, after increasing 14.8% in May.

The Canadian dollar rose to 10-month highs against the greenback with USD/CAD dropping 0.79% to 1.2874 late Friday. The Loonie was boosted higher thanks to stronger-than-forecast Canadian jobs data that bolstered chances for a rate hike by the country’s central bank next week.

Indeed, the Bank of Canada’s latest interest rate decision is due on Wednesday, with most experts anticipating that the bank would raise its benchmark rate by 25 basis points to 0.75%.

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