Growth, Inflation Data from G-7 Economies Could Weigh on Risk

The past week provided markets with volatility and volume at higher levels than the period prior, as market participants reacted to Euro-zone sovereign debt concerns as well as Standard and Poor’s downgrade of the U.S. government debt. These problems remain in the background, and are unlikely to disappear anytime soon. Regardless, there are some key data releases due the third week of August that could either briefly provide relief to markets, or, in what is a more plausible scenario, increase investors’ fears, leading to a further flight from risky assets.

AUD Reserve Bank's Board August Minutes: August 16 – 01:30 GMT

At its meeting on August 2, the Board of the Reserve Bank of Australia voted to leave the cash rate unchanged at 4.75 percent. The Bank revealed that the pace of growth had slowed in the second quarter. Catalysts for the slowdown include supply-chain disruptions from the Japanese earthquake and relatively higher commodity prices. Growth in employment has been sluggish and inflation data indicates price stabilization, which generally coincides with stalling economic growth. Labor market data released this week revealed a rise in the figure from 4.9 percent to 5.1 percent.

The minutes of the meeting will be published on Tuesday,including highlights of the board meeting as well as forecasts of future growth for the antipodean nation, a release that will trigger high volatility among Aussie-based pairs.

EUR German Gross Domestic Product n.s.a. (YoY) (2Q P): August 16 – 06:00

Forecasts suggest that second quarter growth in Germany has slowed considerably, according to a Bloomberg News survey. The gross domestic product reading is expected to print at 3.2 percent, on a year-over-year basis. While this is still a very strong reading, it is well below the 5.2 percent growth Germany experienced in the first quarter. Growth outlook for 2011 and 2012 indicates that Germany will produce above average gross domestic product figures for this period, despite lingering issues in the broader Euro-zone.

Primarily, the ongoing debt crisis in Europe is a major reason for the slowdown, and will remain the biggest concern going forward. Economists surveyed “warned that German exports were vulnerable if the euro zone crisis spread beyond the bloc’s periphery and a rise in private consumption would not balance out a likely year-on-year fall in the contribution from net exports.” Join a DailyFX analyst for live coverage of event!

GBP Bank of England Minutes: August 17 – 08:30 GMT

On August 4, the Bank of England voted to maintain the key interest rate at 0.5 percent. Although the country’s inflation rate decreased from 4.5 percent to 4.2 percent in June, it is still more than double its target of 2 percent and is forecasted to increase back to 4.4 percent when consumer price index data is released next week. Given the high rate, policy makers at the Bank of England agree that the economic outlook is not stable enough to withstand higher interest rates.

Looking ahead, it is evident that the Bank of England’s Monetary Policy Committee is focused on economic growth rather than reducing inflation. With economic recovery expected to be shaky in the short and medium term, the Monetary Policy Committee will likely hold the bank rate at 0.5 percent through the end of 2011.The minutes of the meeting will be published on August 17 and will include highlights of the board meeting as well as forecasts of future growth for the country.

USD Consumer Price Index (YoY) (JUL): August 18 – 12:30 GMT

According to a Bloomberg News survey, economists forecast U.S. consumer price index to fall for the first time this year on a year-on-year basis. The median estimate calls for a 3.3 percent July print. Prior to next week’s release, the consumer price index has steadily risen from 1.6 percent to 3.6 percent in 2011. The consumer price index is the headline figure for inflation, reflecting a decline in the purchasing power of the dollar. However, inflation can also be a sign of a healthy economy.

The objective of the Federal Reserve’s quantitative easing stimulus program was to achieve a target inflation rate of about 2 percent. If this is the beginning of a downward trend for inflation, the Fed may have more reasons to embark on another round of easing to avert any deflationary risk in addition to providing economic stimulus. Join a DailyFX analyst for live coverage of event!

CAD Consumer Price Index (YoY) (JUL): August 19 – 11:00 GMT

Canada’s consumer price index for May grew at its fastest rate in eight years. Since then, the consumer price index level has cooled off considerably and a further decline is expected on August 19. The forecast calls for a consumer price index reading of 2.8 percent for July, a drop of 0.3 percent from the 3.1 percent figure in June. Of note, the month-over-month gross domestic product in May revealed a contraction in the economy of 0.3 percent while economists predicted output to grow by 1 percent.

A drop in output and inflation suggests that the economy may be heading into a soft patch. The index will be closely watched by the bank of Canada as their monetary policy decisions are major drivers for influencing the rate of inflation. Join a DailyFX analyst for live coverage of event!

See the DailyFX Calendar for a full list, timetable, and consensus forecasts for upcoming economic indicators.

Written by Christopher Vecchio, Currency Analyst

To contact the author of this report, please send inquiries to: cvecchio