Market Outlook for the Week of 10th – 14th February

Monday starts slow, with no significant economic data scheduled for the FX market.

On Tuesday, Australia will release the Westpac Consumer Sentiment and NAB Business Confidence data. Fed Chair Powell is set to testify on the Semi-Annual Monetary Policy Report before the Senate Banking Committee in Washington, D.C.

On Wednesday, the key event will be U.S. inflation data, followed by Fed Chair Powell’s testimony before the House Financial Services Committee in Washington, D.C.

On Thursday, New Zealand will release quarterly inflation expectations q/q, while the U.K. will report GDP m/m data. Switzerland will publish its inflation data, and in the U.S., the PPI m/m and unemployment claims will be released.

On Friday, the U.S. will get retail sales m/m. Throughout the week, several FOMC members are expected to deliver remarks.

Recently in Australia, consumer sentiment edged down by 0.7 to 92.1 last month, indicating that a pessimistic tone persists despite an overall improvement since mid-2024. This earlier optimism was largely driven by tax cuts and a more favorable outlook on inflation and interest rates, but the pushback since November is related to weaker economic growth expectations.

For this week’s data, analysts from Westpac highlighted the potential for mixed signals. They argue that the lower-than-expected Q4 CPI could boost sentiment, as markets increasingly price in an RBA rate cut at the upcoming February meeting. However, external risks, particularly market volatility triggered by President Trump’s newly launched tariff wars against Canada, Mexico, and China, may weigh on confidence.

In the U.S., the consensus for the core CPI m/m is 0.3% vs. the prior 0.2%, for the CPI m/m is 0.3% vs. the prior 0.4%, and the CPI y/y is expected to remain unchanged at 2.9%. Bringing inflation down to the Fed’s 2.0% target has proven difficult and this week’s data is likely to reflect that inflation remains sticky.

Analysts at Wells Fargo emphasized that updated seasonal adjustment factors may lead to stronger-than-usual price prints in early 2025. However, if price increases are moderate, favorable base effects could help lower the year-over-year rate in Q1.

Inflation is expected to remain steady through the rest of the year, as softer services inflation is offset by rising goods prices, particularly with new tariffs on the horizon. A slight improvement is expected in this week’s GDP m/m data: 0.1% vs. 0.1% prior. However, if the data surprises to the downside, coupled with risks from U.S. tariffs, it could influence the BoE’s monetary policy decisions, leading the market to anticipate a faster easing cycle.

Inflation in the U.K. has dropped more than expected in December, but a return to the 2.0% target is not likely until the latter part of the year.

In Switzerland, the consensus for CPI m/m is -0.1% vs. -0.1% prior.

Year-over-year data rose by 0.6% in December, in line with expectations but below the SNB’s Q4 forecast of 0.7%. A downward revision from 1.0% in September reinforced the Bank’s view that inflation will remain low.

In terms of monetary policy, the SNB has signaled openness to further easing, with markets anticipating a 25 bps rate cut in March. However, if this week’s data comes in softer than expected, the chances for a more aggressive approach will increase.

In the U.S., the consensus for core retail sales m/m is 0.3% vs. the prior 0.4%, while retail sales m/m are expected to remain flat at 0.0% vs. the previous 0.4%.

Analysts at Wells Fargo argue that despite resilient consumer spending, this week’s data is expected to be flat, with downside risks stemming from weaker consumer confidence and potential new tariffs.

This article was written by Gina Constantin at www.forexlive.com.