August Key Events

August 2023 - KEY EVENTS IN THE MONTH AHEAD

1) WILL THE FED SIGNAL RATE HIKE PAUSE AT JACKSON HOLE?

In July, the US dollar experienced a 1.0% decline (DXY) and briefly reached a new low for the year, dropping below the 100.00-level, a level not seen since April of the previous year. This weakening of the dollar was primarily influenced by mounting evidence of a slowdown in US inflation. As a result, market participants have gained more confidence that the Federal Reserve (Fed) won't need to continue raising interest rates aggressively, leading to increased optimism among investors about a gentler economic landing in the US.

During the Fed's recent policy meeting, Chair Powell indicated that future decisions on monetary policy will be based on incoming data rather than sticking to previous plans for rate hikes later in the year. Consequently, the data released in the coming month, such as CPI, PCE deflator, and PPI reports for July, will play a crucial role in determining whether the rate hike in July will be the final one in the Fed's tightening cycle. The annual Jackson Hole symposium at the end of August might present an opportunity for the Fed to signal a potential pause in its tightening actions.

2) BOE TO SIGNAL IT STILL HAS WORK TO DO

The Bank of England (BoE) is the next major central bank scheduled to update its policy settings in this week. Unlike the European Central Bank (ECB) and the Federal Reserve, which both signalled nearing the end of their hiking cycles during their last policy meetings, the BoE faces a more complex situation in determining its policy.

In the UK, inflation has not decelerated as much as in the euro-zone or the US, although there was some relief from a weaker June Consumer Price Index (CPI) report. As a result, I anticipate the BoE to revert to implementing another modest 25 basis points (bps) interest rate hike this month and to continue expressing concerns about the potential for sustained inflation in the country.

The BoE is likely to keep the option open for further rate hikes later in the year unless there are signs that inflation is slowing more rapidly than anticipated or evidence that the UK economy is being adversely affected by higher rates. It's worth noting that the full impact of higher rates is yet to be fully experienced, and there might be a longer monetary transmission lag compared to previous economic cycles.

3) GOVERNMENT STIMULUS ROLL-OUTS ARE KEY TO WATCH

China's July macro numbers may remain weak, but they won't heavily impact CNY. The focus is on policy stimulus roll-out, particularly in the property sector, which will influence China's growth and CNY performance.

USD

Notes: All FX rates are expressed as units of currency per US dollar bar EUR, GBP, AUD and NZD which are expressed as dollars per unit of currency. Data source spot close; Bloomberg closing rate as of 4:30pm London time, except VND which is local onshore closing rate.

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