USD: The Fed could boost the dollar with a surprise rate hike this week

The US dollar finished last week at its highest levels since last month as US consumer inflation grew by an expectation-beating 1.1% annualized in August, which signaled some wage and labor market improvement. The retail sales, manufacturing output, and producer inflation results for August were on par with analyst expectations, leaving the dollar with an easier climb during the week.

This week will bring the all-important Federal Reserve meeting on Wednesday, where the central bank will decide if the recently positive US economic reports merit an interest rate hike. With futures markets pricing in just a 20% chance for a September rate hike, a surprise increase from the Fed this week could bring a significant boost for the dollar. Aside from the Fed meeting, this week will showcase housing starts and building permits growth for August on Tuesday, July’s housing price and existing home sales data for August on Thursday, and Markit’s preliminary manufacturing output results for September on Friday. While each of these reports are expected to show slow but steady US growth, the dollar could be hurt should any of them disappoint.

EUR: Looking to regain its momentum with at least some business activity growth out of Germany and Eurozone

Despite a decent start last week with some solid results out of the Eurozone, the euro ultimately fell to its two-week lows by Friday against a sharply rising US dollar. On the positive side, Germany’s inflation grew as slowly as expected in August while Italy’s industrial output beat projections. That said, less-positive-than-expected economic sentiment from consumers and businesses out of both Germany and the Eurozone held the euro back. Overall, most of the data since June’s Brexit vote continues to show a resilient Eurozone, which has helped to support the shared currency.

This week will be relatively light data wise until Friday, when revised Q2 GDP growth figures and preliminary business activity readings out of France, Germany and the broader Eurozone are released. While most analysts expect at least some growth in the region (save for France, where they are hoping for flat results at minimum), the euro could fall if disappointing reports cause investors to doubt the Eurozone’s post-Brexit resilience. Tuesday will bring Germany’s producer inflation results for August, which are expected to show a slight contraction in producer prices. European Central Bank President Draghi will speak on Thursday morning, with preliminary consumer confidence readings to follow.

GBP: Entering calm after last week’s tumble against a stronger US dollar

While the pound was spared by the Bank of England’s decision to not cut rates last Thursday, the more attractive US dollar caused sterling to end the week at its lowest levels since mid-August. Beyond the dollar’s strength hurting the GBP:USD pair, the pound faced downward pressure as the UK’s consumer inflation growth missed targets in August and as UK producer inflation grew about one-third as much as analysts expected for the month.

The pound is already getting a boost into this light-data week as its lower price is attracting bargain-hunting investors. Aside from Wednesday’s public-sector borrowing data from August and Thursday’s preliminary industrial trend forecasts, the pound will have little data to go off of this week. Therefore, sterling could very well move opposite the US dollar and could have a poor week if there’s a surprise Fed interest rate hike on Wednesday.

CAD and AUD: Could move with oil prices and opposite the US dollar amidst a light week

The Canadian dollar ended last week at its lowest levels since late July as oil prices fell below $44 per barrel and as Canada’s manufacturing shipments grew by just 0.1% for July, well below consensus estimates of 1.0% growth. The currency could continue to be driven mostly by oil prices unless there’s significant surprises out of Wednesday’s wholesale sales results for July or Friday’s monthly retail sales and consumer price growth results. While analysts are optimistic that the monthly reports will show slow growth, negative surprises or another bad week for oil could send the Canadian dollar lower.

In the Pacific, the Australian dollar finished last week slightly down against the stronger US dollar. That said, the currency fell much less than other currencies thanks to expectation-beating new motor vehicle sales in August and a shrinking unemployment rate as employers added more full-time jobs than expected. This week will be fairly light data-wise, with revised Q2 housing price results set for release on Monday night, the mid-year economic outlook to come out on Tuesday night, and a speech from Reserve Bank of Australia Governor Philip Lowe to come Thursday evening. With little data to go off of, the Aussie dollar will likely move opposite the US dollar this week and could be hurt if there’s a surprise Fed rate hike on Wednesday.