The dollar remained under broad-based pressure against the majors. SEK, NOK, and CHF outperformed while CAD, GBP, and AUD underperformed. Risk on sentiment is pervasive as markets believe the end of the Fed tightening cycle is near. We believe this is premature but for now, we cannot stand in the way of this narrative and so further near-term dollar weakness seems likely. Eventually, deteriorating macro conditions in the rest of the world should boost the greenback’s attractiveness but we are not there yet.

AMERICAS

Fed expectations actually haven’t changed that much this past week. A 25 bp hike July 26 is still largely priced in, while the odds of a second 25 bp hike are still hovering just above 30%. Lastly, the first cut is not priced in until next May. And yet the dollar remained under relentless pressure all last week. DXY fell nearly -2.5% for its worst week since mid-November, when it plunged over -4%. We do not think this weakness was warranted given the underlying fundamental story and yet here we are. Until the soft landing narrative changes, it will be hard for the dollar to recover significantly.

June retail sales Tuesday will be the data highlight. Consensus sees headline sales up 0.5% m/m, ex-auto up 0.4%, and the so-called control group used for GDP calculations up 0.4%. We note that markets should not just rely on retail sales data to gauge the strength of the consumer, as it only covers goods. Personal spending covers services as well and will give a much fuller picture, but the June reading won’t be reported until July 28 along with PCE data. Last week, Michigan consumer sentiment came in much stronger than expected at 72.6 vs. 64.4 in June and was the highest since September 2021. This suggests consumption is likely to remain robust as we move into H2. Of note, the Atlanta Fed’s GDPNow model is currently tracking Q2 growth of 2.3% SAAR. Next model update comes Tuesday after the data.

Regional Fed surveys for July start rolling out. Empire manufacturing survey kicks things of Monday and is expected at -3.5 vs. 6.6 in June. New York Fed services survey will be reported Tuesday. Philly Fed survey will be reported Thursday and is expected at -10.0 vs. -13.7 in June.

Housing data will get some attention. July NAHB housing market index will be reported Tuesday and is expected at 56 vs. 55 in June. June building permits and housing starts will be reported Wednesday and are expected at -0.4% m/m and -9.6% m/m, respectively. June existing home sales will be reported Thursday and are expected at -2/2% m/m vs. 0.2% in May. Was the unexpected jump in May new home sales just a fluke or something more sustainable? We should know more after this week’s data.

Weekly jobless claims Thursday will be closely watched. That‘s because initial claims will be for the BLS survey week containing the 12th of the month, and are expected at 242k vs. 237k last week. Continuing claims are reported with a one-week lag and are expected at 1.733 mln vs. 1.729 mln last week.

Other minor data will be reported. June IP, May business inventories, and May TIC data will be reported Tuesday. IP is expected flat m/m vs. -0.2% in May, while inventories are expected to remain steady at 0.2% m/m. June leading index will be reported Thursday and is expected at -0.6% m/m vs. -0.7% in May.

Canada highlight will be June CPI data Tuesday. Headline is expected at 3.0% y/y vs. 3.4% in May, while both core median and trim are expected to fall two ticks to 3.7% y/y and 3.6% y/y, respectively. If so, headline would be the lowest since March 2021 but still above the 2% target. Bank of Canada just hiked rates 25 bp to 5.0% last week and said it now sees inflation returning to the 2% target by mid-2025 vs. end-2024 previously, adding that it is concerned progress towards it could stall. Updated macro forecasts were released. Later, Governor Macklem said the bank discussed holding rates and awaiting more data but decided that the cost of delay exceeded the benefit of waiting. He said the bank is prepared to hike again if needed but that it would assess rates on a decision-by-decision basis. Looking ahead, WIRP suggests 30% odds of a hike September 6, rising to nearly 50% October 25. Whether there is another hike will all come down to the data.

May retail sales data Friday will also be important. Headline is expected at 0.5% m/m vs. 1.1% in April, while ex-auto is expected at 0.1% m/m vs. 1.3% in April. Ahead of that, May wholesale trade will be reported Monday and is expected at 1.0% m/m vs. -1.4% in April. June housing starts will be reported Tuesday.

EUROPE/MIDDLE EAST/AFRICA

ECB tightening expectations remain steady ahead of next week’s meeting. WIRP suggests a 25 bp hike is nearly priced in July 27. Odds of another 25 bp hike stand near 65% September 14 and is nearly priced in October 26. Lagarde, Lane, Vasle, Elderson, and Vujcic all speak Monday. Vujcic speaks again Wednesday. Villeroy speaks Thursday. There are no major data releases this week.

U.K. data highlight will be June CPI Wednesday. Headline is expected at 8.2% y/y vs. 8.7% in May, core is expected to remain steady at 7.1% y/y, and CPIH is expected at 7.5% y/y vs. 7.9% in May. If so, headline would be the lowest since March 2022 but still well above the 2% target.

BOE tightening expectations remain elevated. WIRP suggests another 50 bp hike is largely priced August 3, followed by 25 bp hikes September 21, November 2, and December 14 that would see the bank rate peak near 6.25%. This would represent the most aggressive tightening cycle in the majors so far in terms of absolute magnitude and so a deep recession is now back on the table after some earlier optimism that one might be avoided. Updated macro forecasts will come at the August meeting and will have to acknowledge the worsening backdrop. Ramsden speaks Wednesday.

June retail sales data Friday will also be important. Headline is expected at 0.2% m/m vs. 0.3% in May while sales ex-auto fuel are expected at 0.2% m/m vs. 0.1% in May. The y/y rates are both expected at -1.6%. Can consumption hold up even as household budgets continue to get squeezed by inflation? Stay tuned.

Other minor U.K. data will be reported. July GfK consumer confidence will be reported Thursday and is expected at -26 vs. -24 in June. If so, it would be the first drop since January. June public sector net borrowing will be reported Friday and ex-banking groups is expected at GBP22.0 bln vs. GBP20.0 bln in May.

ASIA

Japan highlight will be June national CPI data Friday. Headline is expected to rise a tick to 3.3% y/y while core (ex-fresh food) is expected to remain steady at 3.2% y/y. Better yet, core ex-energy is expected to fall a tick to 4.2% y/y. If so, it would be the first drop since January 2022. Reports suggest the BOJ will likely raise its FY23 inflation forecast above 2.0% vs. 1.8% currently whilst keeping it largely unchanged for FY24 or perhaps even nudging it lower from 2.0% currently when it releases its quarterly outlook report on July 28 at the end of its policy meeting.

There is speculation that the Bank of Japan will tweak its Yield Curve Control at the upcoming July 27-28 meeting. The last tweak was the surprising widening of the 10-year JGB yield trading band to 0% +/- 50 bp. JGB yields have crept higher in anticipation of a YCC tweak but we remain skeptical of a move at this meeting, and instead believe it is more likely to come in the autumn. Either way, expected liftoff has been pushed into 2024 and we concur.

June trade data Thursday will also be important. Exports are expected at 2.6% y/y vs. 0.6% in May, while imports are expected at -11.3% y/y vs. -9.8% in May. If so, it would be the first improvement in exports since February but still quite weak.

Australia highlight will be June jobs data Thursday. Consensus sees 15.0k jobs added vs. 75.9k in May, while the unemployment rate is expected to remain steady at 3.6%. Continued strength in the labor market will be a big factor for monetary policy going forward, as low unemployment is likely to stoke wage pressures. As things stand, unemployment is nearly half a percentage point below where the RBA sees it ending the year (4.0%)

The Reserve Bank of Australia releases its minutes Tuesday. At the July meeting, the bank left rates steady at 4.10% and warned that “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve. The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the economic outlook and associated risks.” After the pause, RBA tightening expectations were pushed out slightly. WIRP suggests 30% odds of a 25 bp hike August 1, which rise to 55% September 5 and 75% October 3 before becoming fully priced in for November 7. Looking ahead, odds of another 25 bp hike after that top out near 50% in H1 2024. Updated macro forecasts will be released at the August 1 meeting.

New Zealand reports Q2 CPI data Wednesday. Headline is expected at 5.9% y/y vs. 6.7% in Q1, while the q/q rate is expected at 0.9% vs. 1.2% in Q1. If so, it would be the lowest y/y rate since Q4 2021 but still well above the 1-3% target range. The RBNZ just left rates steady at 5.5% and noted that “Interest rates are constraining spending and inflation pressure as anticipated and required. The Committee is confident that with interest rates remaining at a restrictive level for some time, consumer price inflation will return to within its target range.” There were neither updated macro forecasts nor a press conference by Governor Orr. Both will come at the August 16 meeting. It remains to be seen whether the RBNZ is eventually forced to restart the tightening cycle but for now, WIRP suggests only 15% odds of a hike next month, rising to around 25% October 4 and then topping out near 45% in early 2024. At the same time, easing is not priced in until mid-2024.