Last week, the market was volatile and the tension eased, but the release of the US Consumer Price Index (CPI) this week may once again trigger volatility. In the UK, with the release of CPI, GDP, and retail sales data, the pound will enter a critical week. In other aspects, the Reserve Bank of New Zealand is gradually approaching a rate cut, but whether it will announce it this week is still unknown. In addition, Japan's GDP, Australia's employment data, and China's data are also highly concerned.

Concerns about the US economy have become a focal point

The panic about the imminent recession in the US economy has largely eased, but the market remains tight. Investors believe that the delay in interest rate cuts by the Federal Reserve may make an economic recession inevitable. Sticky inflation is the main reason why the Federal Reserve remains cautious. However, inflationary pressures finally seem to be subsiding in a more sustainable way.

This week's CPI report is expected to emphasize this trend, and if nothing unexpected happens, the data may not have much impact on concerns about slowing down the economy, as the focus has shifted to growth. But if inflation data unexpectedly fluctuates significantly, the chain reaction in the market will be even more pronounced.

CPI may continue to maintain a downward trend

It is expected that the annual growth rate of the US CPI in July will be 2.9%, slightly lower than the previous month's 3.0%. However, the month on month growth rate is expected to accelerate from -0.1% to 0.2%. The expected year-on-year growth rate of core CPI will decrease from 3.3% to 3.2%, but the month on month growth rate will increase from 0.1% to 0.2%.

If there is an unexpected significant upward trend, it will be the worst outcome for the market, as it means that the Federal Reserve cannot quickly cut interest rates even in the event of an economic downturn. On the other hand, if the data is significantly lower than expected, it may exacerbate market expectations for a 50 basis point rate cut by the Federal Reserve in September, which will boost investor sentiment.

Busy American schedule

The CPI data will be released on Wednesday, followed by the Producer Price Index on Tuesday and retail sales data on Thursday. After zero growth in June, retail sales are expected to increase by 0.3% month on month in July, which may alleviate recession concerns to some extent.

On Friday, the University of Michigan's consumer confidence survey will also receive significant attention, especially regarding inflation expectations for the next year. In addition, on Thursday, the manufacturing index of the New York and Philadelphia Federal Reserve and the industrial production data for July will be released, while on Friday, there will be building permits and housing construction data, which will also receive some attention.

If the upcoming data further supports the expectation of active interest rate cuts, the US dollar may come under pressure again as it has just rebounded from last week's sell-off.

The pound is weak before UK data

The pound has almost given up all of its gains from July and has performed poorly this month, only outperforming the US dollar. Although the Bank of England's decision to cut interest rates was partly due to this, riots in various cities across the UK have also dragged down the pound, at a time when investors are eliminating political risks in the UK.

However, the focus for the next seven days will be firmly on the economy, starting with Tuesday's UK labor market report. The slightly cooled labor market has helped wage growth fall to 5.7% year-on-year, but policymakers at the Bank of England need to see further declines before they can prepare for another rate cut.

The CPI data for July will be released on Wednesday, which may be a key factor determining whether the Bank of England will cut interest rates again in September. Currently, the market expects a probability of another 25 basis points reduction of about 30%. The year-on-year growth rate of CPI in June remained unchanged at 2.0%, which is in line with the target of the Bank of England. But the inflation rate may rise to 2.3% in July, which will support the rationale for the Bank of England's hawkish interest rate cut in August.

Investors will also closely monitor the CPI of the service industry, just like wage data, which remains high.

On Thursday, the UK will release preliminary GDP data for the second quarter. It is expected that the economy will grow by 0.7% month on month in the second quarter, maintaining the same growth rate as the first quarter. The retail sales data for July, which will be released on Friday, will conclude next week's economic data.

Although the possibility of consecutive interest rate cuts in September is low, a series of overall weak data may further boost market expectations and have a further impact on the pound.

Will the Reserve Bank of New Zealand join the ranks of interest rate cuts?

The Reserve Bank of New Zealand will hold its latest policy meeting on Wednesday. Economists do not expect to remain inactive, but traders increasingly believe that the Reserve Bank of New Zealand will announce a 25 basis point reduction in cash rates. After the last meeting, policy makers expressed optimism about the prospect of inflation returning to the target range of 1-3% in the second half of this year. Subsequently, the third quarter CPI report showed inflation falling to 3.3%, which also supported loose expectations.

In addition, a survey of inflation expectations conducted by the Reserve Bank of New Zealand shows that the expected value has dropped to the lowest level in over three years.

Therefore, investors' expectations for a rate cut in August have risen significantly to about 80%, so if the Reserve Bank of New Zealand decides to cut interest rates, the New Zealand dollar may not fall significantly unless policy makers suggest that more rate cuts are on the way.

Can the Australian dollar continue to rebound?

As the Reserve Bank of New Zealand is increasingly likely to start cutting interest rates later this year (if not at the August meeting), the Reserve Bank of Australia is gradually becoming an exception. Australian Federal Reserve President Michelle Bullock has opposed market expectations of a recent rate cut, but investors still believe there is a reasonable possibility of a rate cut before December.

Nevertheless, the hawkish stance of the Reserve Bank of Australia is supporting attempts to rebound the Australian dollar against the US dollar, despite the potential downside risks posed by this week's announcement. The wage price index for the second quarter will be released on Tuesday, while the employment report for July will be released on Thursday.

In addition to domestic indicators, Australian dollar traders will also pay attention to the latest monthly data releases from China. China's industrial production, retail sales and fixed assets investment data for July will be released on Thursday. If retail sales data disappoints, especially with concerns about the slow economic trajectory of major Asian countries intensifying, it may have a negative impact on the Australian dollar.

Yen bulls focus on Q2 GDP

Japan's Q2 GDP data will be released on Thursday. These data are crucial for the Bank of Japan, as internal discussions on whether the economy is strong enough to withstand higher interest rates continue. Other released data includes Tuesday's enterprise commodity price index and Friday's machinery orders.

The rise of the Japanese yen has temporarily stalled, after performing well in the past month. However, if the actual GDP data is higher than the expected 0.5%, it may reignite the enthusiasm of bulls.