Next week, the Federal Reserve will enter a quiet period before the FOMC rate meeting on 30th July. The European Central Bank is anticipated to keep interest rates unchanged, considering the current tariff threats, though they are close to neutral rates.
Upcoming Economic Data Releases
The S&P Global flash manufacturing and services data for Europe and the US will be released on Thursday. Last week’s US initial jobless claims decreased to 221,000, moving closer to the lower range after a brief increase towards 250,000.
Scheduled releases include New Zealand’s CPI on Sunday, predicted at 0.6% compared to the previous 0.9%. The Japanese Upper House Elections will occur all day Sunday. On Wednesday, the AUD will be under focus with a speech by the RBA Governor.
On Thursday, significant data releases include French, German, and UK flash manufacturing and services PMIs. The ECB will also announce its rate decision, which is expected to remain at 2.15%. In the US, unemployment claims are forecasted at 229,000.
Friday will feature UK retail sales data, anticipated to rise by 1.2% after a previous decline of 2.7%.
Federal Reserve Quiet Period and Market Implications
With the Federal Reserve in its quiet period, we believe the market will be driven entirely by incoming data to shape expectations for the July 30th meeting. The recent drop in jobless claims to 221,000 signals a labor market that is still quite robust. This underlying strength may limit the central bank’s appetite for a significant rate cut.
We anticipate the European Central Bank will keep rates on hold, but the accompanying statement will carry a distinct dovish bias. Recent data, like the ZEW Economic Sentiment survey for Germany falling to 49.6 in July, shows confidence is waning amid global trade tensions. The weak flash manufacturing PMI forecasts for both Germany and France further support the case for future easing.
The divergence between a resilient US economy and a slowing European one creates a clear theme for the coming weeks. The latest US Consumer Price Index showed inflation cooling to 3.0% year-over-year in June, which eases some pressure, but the economy is still outperforming its peers. We see this as a reason to favor US assets over European ones.
Thursday will be the pivotal day, with a cascade of manufacturing and services data being released before the ECB press conference. A wider-than-expected gap between the US PMI figures (forecast above 52) and the contractionary European numbers could fuel significant dollar strength. Derivative traders might position for this by exploring call options on the dollar index or put options on the EUR/USD pair.
Looking back, periods of policy divergence, such as in 2014 when the ECB embarked on easing while the Fed looked to tighten, led to sustained dollar rallies. We will be watching Christine Lagarde’s press conference carefully for any language that mirrors this historical precedent. Any strong signal of future rate cuts in Europe could ignite a similar trend.
Outside of the major economies, we will monitor the inflation report from New Zealand and listen for any policy hints from Governor Bullock in Australia. The results of the election in Japan could also create short-term volatility in yen-denominated assets. These peripheral events could offer satellite trading opportunities around a core long-dollar strategy.
