The dollar staged a broad-based rally last week, underpinned by the stickier than expected January inflation data. NOK, SEK, and AUD eked out small gains while CHF, JPY, and NZD underperformed. The greenback gave back some of its gains following the downbeat retail sales report, which we viewed as weather-related. Interestingly, UST yields shrugged off the poor retail sales print, suggesting the inflation backdrop remains a bigger concern. If yields continue to edge higher as we expect, the dollar should benefit.

AMERICAS

It's a data-light week in the U.S., U.K., eurozone, and Japan. Also, U.S. markets are closed Monday. As such, we expect the dollar to take its cue from the S&P Global February preliminary PMIs for the major economies for the latest updates to the global economic outlook.

FOMC minutes Wednesday will be the U.S. highlight. Recall that the Fed delivered a hawkish hold at the January 30-31 meeting, which was partially necessitated by the dovish hold at the December 12-13 meeting. Recall that last month, Chair Powell emphasized that a March rate cut was not likely and added that “we are prepared to maintain the current target range for the federal funds rate for longer, if appropriate.” Lastly, Powell underscored that the Fed was in no hurry to adjust the pace of QT, noting that discussions would begin in earnest at the March 19-20 meeting. Bostic speaks Wednesday. Jefferson, Bowman, Harker, Cook, Kashkari, and Waller all speak Thursday.

S&P Global reports preliminary February PMIs Thursday. Manufacturing is expected at 50.5 vs. 50.7 in January, services is expected at 52.1 vs. 52.5 in January, and the composite is expected to remain steady at 52.0.

January Chicago Fed National Activity Index Thursday will get some attention. Headline is expected at -0.25 vs. -0.15 in December. If so, the 3-month moving average would improve to -0.13 vs. -0.27 in December. This would be the highest since September and further away from the -0.7 threshold that signals recession.

Weekly jobless claims will be closely watched. That’s because initial claims will be for the BLS survey week containing the 12th of the month. These are expected at 218k vs. 212k previously. Continuing claims are reported with a one-week lag and so next week’s reading will be for the BLS survey week. This week, they are expected at 1.88 mln vs. 1.895 mln previously. Bloomberg consensus for February NFP stands at 150k vs. 353k in January, while its whisper number stands at 222k.

Canada highlight will be January CPI Tuesday. Headline is expected at 3.2% y/y vs. 3.4% in December. If so, it would be the first deceleration since October. However, core trim is expected to fall a tick to 3.6% while core median is expected to remain steady at 3.6% y/y. The Bank of Canada can be patient before cutting interest rates, as core inflation remains high and sticky in the range of 3.5-4.0%, driven in large part by rising rents. Canada’s OIS curve implies a first rate cut will be seen in July.

December retail sales Thursday will also be important. Consensus sees headline at 0.8% m/m vs. -0.2% in November and ex-autos at 0.6% m/m vs. -0.5% in November. Meanwhile, Statistics Canada’s advance estimate of nominal retail sales comes in right at consensus of 0.8%.

EUROPE/MIDDLE EAST/AFRICA

ECB publishes the account of its January meeting Thursday. It will be scrutinized for any hints, if any, about the timing and scope of future interest rate cuts. During her post-meeting press conference, President Lagarde emphasized that the debate over rate cuts was premature but noted that borrowing costs could be lowered from the summer. Since then, many officials have continued to push back against the notion of a cut this spring. Of note, the market sees less than 10% odds of a cut March 7, rising to 45% April 11 and fully priced in June 6.

ECB reports its indicator of negotiated wage settlements for Q4 Tuesday. In Q3, wage settlements rose 4.7% y/y, the highest since Q1 93. No wonder some at the ECB remain concerned about potential inflationary impulses in the economy. Despite the slowdown in the economy, eurozone unemployment is at a cycle low of 6.4% in December and so wage pressures may be persistent.

Eurozone data highlight will be preliminary February PMIs Thursday. Headline manufacturing is expected at 47.0 vs. 46.6 in January, services is expected at 48.8 vs. 48.4 in January, and the composite is expected at 48.4 vs. 47.9 in January. Looking at the country breakdown, the German composite is expected at 47.3 vs. 47.0 in January and the French composite is expected at 45.0 vs. 44.6 in January. Italy and Spain will be reported with the final February readings in early March.

January ECB inflation expectations Friday will be important. 1-year expectations have been falling steadily, but the 3-year measure has started to trend upwards. This is another development that worries ECB policymakers.

U.K. data highlight will be preliminary February PMIs Thursday. Manufacturing is expected at 47.5 vs. 47.0 in January, services is expected at 54.2 vs. 54.3 in January, and the composite is expected to remain steady at 52.9. U.K. CBI February industrial trends survey Wednesday and February GfK consumer confidence Friday will provide some more color.

Bank of England easing expectations have adjusted. The market sees basically no chance of a cut March 21, rising to 20% May 9 and 45% June 20. A cut isn’t fully priced in until August 1. Dhingra speaks Wednesday. Greene speaks both Thursday and Friday. Of note, Dhingra shifted to a 25 bp cut at the February 1 meeting from a hold previously, while Greene shifted to a hold vs. a 25 bp hike previously.

Sweden highlight will be January CPI Monday. CPI, CPIF, and CPIF excluding energy are projected to fall m/m by -0.4%, -0.6% and -0.5%, respectively. However, the y/y rates for CPI and CPIF are expected to pick up to 5.0% and 3.1%, respectively, due to low base effects. Inflation has recently fallen in line with the Riksbank's forecasts and so we believe the January data will likely support money market pricing for Riksbank rate cuts, with 100 bp priced in over the next 12 months). However, the timing of Riksbank rate cuts will depend in large part on when the major central banks abroad begin to ease policy. This is because the Riksbank wants to guard against upside risks to inflation from a sharp depreciation in the krona. There are several Riksbank speakers Tuesday. Deputy Governor Floden, First Deputy Governor Breman, and Governor Thedeen all speak then.

ASIA

Japan data highlight will be preliminary February PMIs Thursday.

Japan reports December core machine orders Monday. Orders are expected at -1.3% y/y vs. -5.0% in November. Last week, machine tool orders came much weaker than expected at -14.1% y/y and was driven largely by domestic weakness (-29.7% y/y) rather than foreign (-6.2% y/y).

January trade data Wednesday will be important. Exports are expected at 9.5% y/y vs. 9.7% in December, while imports are expected at -8.3% y/y vs/ -6.9% in December.

RBA minutes will be released Tuesday. The minutes to the February 6 meeting minutes should provide more color behind the RBA’s hawkish hold. Recall that the RBA did not rule out “a further increase in interest rates” largely because inflation “is too high.” Still, Governor Bullock offered a more balanced guidance afterwards, warning the RBA is “not ruling in anything or out anything.” Of note, the market is not pricing in the first cut until Q3.

Australia highlight will be Q4 wage price Index Wednesday. It is expected to rise 0.9% q/q and 4.1% y/y. As background, WPI grew 1.3% q/q in Q3 2023 and was the largest quarterly increase since the beginning of the series in the late 1990s. It also rose 4.0% y/y and was the highest since December 2008. The RBA projects WPI growth to remain robust in the near term before moderating in response to expected easing in the labor market. Strong wage growth will validate the RBA’s decision not to rule out further rate hikes and would support AUD.

Australia also reports preliminary February PMIs Thursday.

New Zealand data highlight will be Q4 real retail sales Friday. This will be the last policy-relevant data release ahead of next week’s RBNZ policy decision. Retail sales volume is expected to decline by -0.2% q/q in Q4 after a flat reading in Q3. However, the improvement in the consumer confidence index points to upside risk to retail spending. Q4 PPI Wednesday and January trade data Thursday will also be closely watched.