A Crucial Week for Policy Expectations

The new trading week begins with investors cautious, digesting weaker dollar sentiment and firmer yields. Global attention will quickly shift to incoming data that could redefine policy trajectories ahead of the September Fed meeting. Major currency pairs are likely to trade on headlines, especially as Jackson Hole approaches.

U.S. Housing – The First Test

On Tuesday, U.S. housing data provides the week’s opening catalyst. Forecasts call for 1.393 million building permits and 1.321 million housing starts. Strong numbers would reassure markets that housing is stabilising despite higher borrowing costs, giving the dollar a short-term lift. Weak data would reinforce expectations that the Fed cannot wait much longer before cutting, pushing USD lower.

Inflation Dynamics Across the Atlantic

Wednesday will be dominated by UK and Eurozone inflation data. In the UK, consumer prices are seen easing to 3.6%. A soft reading would signal that BoE tightening has done its job, likely limiting sterling strength. If inflation surprises higher, it could jolt GBP/USD upward as markets reassess the likelihood of cuts.

In Europe, CPI is set to remain unchanged. Investors will scrutinise the release for clues about core prices. The euro’s fate rests less on headline inflation and more on whether policymakers can argue for staying patient while growth remains fragile.

Later that evening, the FOMC Minutes could inject volatility. Traders want insight into whether Fed officials view labour weakness or sticky inflation as the greater risk.

PMI Thursday – Gauging Growth Momentum

Thursday brings a wave of PMI reports. In the euro area, services are expected to remain in growth at 51.0 while manufacturing stays just shy of expansion at 49.5. Stronger results would buoy the euro, while disappointments could reignite doubts about recovery.

The UK faces similar dynamics: services still positive at 51.8, but manufacturing expected to contract at 48.0. If combined with weak retail sentiment, the pound may struggle despite prior resilience.

In the U.S., PMI and jobless claims data will show whether momentum is eroding. Jobless claims are seen rising modestly to 224k. A bigger increase would fuel Fed cut speculation.

That same day, the Jackson Hole Symposium begins. Markets will listen closely for early remarks from Fed members, but the real test comes Friday.

Powell’s Speech – The Defining Moment

Friday’s spotlight falls squarely on Jerome Powell. His Jackson Hole speech will set the tone for Fed policy expectations into September. A hawkish delivery would challenge markets by suggesting the Fed can afford patience, pushing the dollar higher and weighing on risk assets. A dovish tone would validate bets on cuts, driving USD lower while supporting gold and risk currencies.

Also Friday, the UK publishes Retail Sales, forecast to rebound by 0.9% MoM. A strong print would help the pound shake off mid-week inflation softness. Japan’s CPI, projected at 3.3%, may also nudge yen trading, especially if inflation overshoots and renews speculation about a BoJ shift.

Summary

The week ahead is set to deliver a string of pivotal events. Housing data will test U.S. economic resilience early, while UK and Eurozone inflation numbers mid-week offer crucial guidance for GBP and EUR. PMI releases provide growth signals across regions, and Friday brings two climactic events: UK retail sales and Powell’s Jackson Hole speech. Expect sharp swings in EUR/USD, GBP/USD, and USD/JPY as traders recalibrate for a September that could mark the Fed’s long-awaited pivot.