Week Ahead for FX, Bonds: U.S. PCE Inflation Data in Focus as Fed Rate Cut Looks Likely

By Dow Jones Newswires staff

Below are the most important global events likely to affect FX and bond markets in the week starting August 25.

U.S. PCE inflation data for July will be the key economic indicator in the coming week as investors anticipate that the Federal Reserve will probably cut interest rates next month.

In Europe, confidence surveys will give clues on how the economy is faring following the implementation of U.S. trade tariffs, alongside provisional August inflation figures from individual countries.

In Asia, central-bank decisions in South Korea and the Philippines will be in focus, alongside a series of data releases out of Japan.

U.S.

Speaking at the Jackson Hole Symposium, Federal Reserve Chair Jerome Powell expressed concern about a weakening job market and opened the door to the prospect of the central bank cutting interest rates next month.

U.S. money markets price a high 89% chance of a rate cut in September as a result, LSEG data show.

Investors will still be looking to upcoming data to confirm this expectation, as well as for clues as to whether the Fed will reduce rates again in October or December.

They will be looking to see whether tariffs are causing inflation to rise and for signs on the extent to which the U.S. economy is slowing. The latest monthly jobs data were well below expectations, though more recent purchasing managers' surveys showed activity picking up more than forecast.

Friday's data on July PCE inflation--the Fed's preferred measure of inflation--will be the next key item of U.S. data ahead of the central bank's September policy meeting.

If the core PCE reading is strong then the Fed could require another weak nonfarm payrolls reading for August--when these figures are released early next month--in order to justify cutting interest rates, Pepperstone head of research Chris Weston said in a note.

Other data will give clues on the state of the U.S. economy, including July durable goods orders and the Conference Board consumer confidence survey for August on Tuesday, followed by the second estimate of second-quarter GDP and weekly jobless claims on Thursday.

HSBC economists forecast that second-quarter quarter-on-quarter annualized GDP growth will be revised up to 3.2% from the initial estimate of 3.0%. However, they expect consumer sentiment will "remain subdued" in August, while durable goods orders show a contraction in July, they said in a research note.

Data on the U.S. housing market include new home sales for July on Monday and the Case-Shiller home price index for June on Tuesday. The University of Michigan's final consumer survey for August is released Friday.

The Treasury will auction $69 billion in two-year notes on Tuesday, $70 billion in five-year notes on Wednesday and $44 billion in seven-year notes on Thursday.

Canada

Canadian GDP data for June are released Friday.

This comes as money markets price in some chance--around 30%--of the Bank of Canada cutting interest rates at its September meeting, LSEG data show, after recent below-forecast inflation data.

Eurozone

Germany's Ifo business climate index for August on Monday will give fresh insight into the prospect of a pickup in Europe's economic engine.

The Ifo data is followed by more confidence surveys from the region. France will release consumer confidence survey data for August on Tuesday, while Germany's GfK consumer climate survey is due on Wednesday. The European Union and Italy will release consumer and business confidence data for August on Thursday.

These come after recent better-than-expected provisional August purchasing managers' surveys for Germany, France and the eurozone, and investors will be looking to see whether this trend is replicated elsewhere.

"Eurozone sentiment will be closely watched next week to see whether it gives August just as shiny a report card as the PMI did," ING economist Bert Colijn said in a note.

If so, it would "cement the view of a better-performing eurozone economy" and provide hope that the impact of hefty U.S. trade tariffs has "so far been smaller than expected," he said.

Friday will be a big day for eurozone data. Provisional inflation figures for August from Germany, France, Spain and Italy will be released, alongside German labor market data for August.

German retail sales for July are also due Friday, plus a string of data from France including July consumer spending, producer prices and second-quarter jobs figures. Italy will also publish second-quarter GDP.

The accounts from the European Central Bank's July meeting are due for release on Thursday.

Bond auctions in the coming week include Belgium tapping 2033-, 2034- and 2055-dated government bonds on Monday. Germany will launch a new November 2032-dated Bund, offering 4 billion euros on Tuesday. Italy will have an auction on Thursday, with details to be announced on Monday.

U.K.

The coming week is a quiet one in the U.K., with markets closed on Monday due to a public holiday.

Data are thin on the ground. The British Retail Consortium's shop price index for August is due Tuesday, while the Nationwide August house price index is due during the week.

The U.K. is due to sell government bonds, or gilts, maturing in March 2028 on Wednesday.

Scandinavia

Swedish second-quarter GDP figures are due on Friday.

These data come after Sweden's central bank kept its benchmark interest rate on hold at its recent meeting but said it could resume cutting rates later this year.

Sweden will auction a total of 6 billion kronor in 2035- and 2036-dated bonds on Wednesday.

Switzerland

Swiss second-quarter gross domestic product data are released on Thursday.

Hungary

Hungary's central bank announces a rate decision on Tuesday, where it is expected to leave interest rates on hold at 6.50% amid elevated inflation and high inflation expectations.

"We still see no scope for the National Bank of Hungary to ease monetary policy in the short term," ING analyst Peter Virovacz said in a note.

Japan

A series of releases Friday will provide fresh signals on Japan's economic resilience amid tariff pressures.

Following stronger-than-expected second-quarter growth, investors will look to the next batch of data for confirmation of the economy's health. Key releases include Tokyo inflation--considered a leading gauge of nationwide trends--along with retail sales, labor-market and industrial-production data.

Signs of strength could fuel expectations that the Bank of Japan will deliver a rate hike as early as October.

On Thursday, BOJ policy board member Junko Nakagawa is scheduled to meet with local leaders in Yamaguchi, where she is expected to speak. Market participants will watch for any clues on the BOJ's rate trajectory.

Bond traders will also focus on BOJ and Ministry of Finance bond operations during the week.

The BOJ plans outright purchases of five categories of Japanese government bonds on Wednesday. These include notes with maturities of more than 5 years and up to 10 years; more than 10 years and up to 25 years; and over 25 years. The purchases are expected to support the bond market.

On Tuesday, the Ministry of Finance will hold a liquidity-enhancement auction, offering about 350 billion yen of outstanding 20-, 30- and 40-year JGBs. An auction of two-year sovereign notes, slated for Thursday, may also draw attention, given the tenor's sensitivity to BOJ rate-hike expectations.

Australia/New Zealand

In Australia, attention will center on the release of minutes from the Reserve Bank of Australia's last policy meeting, where the nine-member board voted unanimously to cut the official cash rate.

It was the third reduction in the current cycle, taking the rate to 3.60%. The RBA indicated that further reductions will be needed to keep inflation at the midpoint of the target band.

Clarity on the pace and extent of future easing may come with Wednesday's July inflation report.

The RBA appeared comfortable after the last quarterly data showed core CPI at 2.7% on year. Still, stronger consumer spending and confidence, now at its highest level in years, suggest upside risks remain.

China

China's calendar is light, with industrial profit data Wednesday the main release.

ING economists expect profits to have stayed under pressure in July. Officials' efforts to curb deflationary price wars will be key to reducing losses and excess capacity, they said. "But given the negative externalities of such a policy drive, this will likely be a very gradual process." ING expects profits to be squeezed through the year.

Attention then shifts to official PMI readings due on the final day of August.

Citi analysts expect the manufacturing PMI to continue to signal weakness in August, with a modest rise to 49.5 from 49.3. They noted that heavy rainfall may have further weighed on manufacturing activity during the seasonal slowdown.

The non-manufacturing PMI, covering construction and service-sector activity, likely held above the 50 mark that separates growth from contraction. PMI gauges weakened in July, and any further deterioration could raise expectations of policy stimulus.

South Korea

The Bank of Korea is expected to hold its benchmark rate for a second meeting Thursday, while slightly raising its 2025 growth and inflation forecasts.

At its July meeting, the central bank kept its benchmark seven-day repurchase rate at 2.50%, signaling caution about cutting too aggressively amid rising household debt and a strong property market in Seoul.

The central bank may prefer to wait until October before easing, Citigroup economist Jin Wook Kim said. The BOK could raise its GDP growth forecast to 0.9% from 0.8% and its headline inflation forecast to 2.0% from 1.9%, reflecting stronger economic data and easing U.S. tariff uncertainties after a trade deal with Washington, Kim said.

The bank will also want to assess housing-price trends, the impact of recent fiscal stimulus as well as U.S. trade policies-while also awaiting the Federal Reserve's September rate decision, he added.

ING economist Min Joo Kang also said weak domestic demand argues for support, but the central bank is likely to delay a rate cut until October given a lack of signs that property prices are moderating.

Philippines

The Philippines' central bank will announce its rate decision Thursday; Bangko Sentral ng Pilipinas has already cut rates in April and June this year to bolster growth.

Low inflation could prompt another 25-basis-point reduction, bringing the policy rate to 5.00% from 5.25%, said HSBC Asean economist Aris Dacanay.

Headline inflation has been below the BSP's 2%-4% target range for five months, easing to as low as 0.9% in July. "Given the performance of inflation so far, the BSP, we believe, has the runway to quicken and, most especially, deepen its easing cycle," Dacanay said.

India

India will release GDP data for the April-June quarter. Growth is expected to slow sequentially, with weak mining and manufacturing weighing on construction, ANZ Research said.

Real export growth, however, likely improved on strong services demand, it added.

GDP growth likely normalized on base effects and weaker growth momentum, Citi said, with resilient rural consumption outpacing lackluster urban demand.

U.S. President Trump has threatened an additional 25% levy as punishment for buying Russian oil, on top of a previously announced 25% tariff. The extra 25% is set to take effect next week unless an agreement is reached, something that economists warn could be a drag on the Indian economy, which has recently started to pick up.

India is nowhere as dependent on U.S. trade demands as many other emerging economies, but a 50% tariff would be big enough to materially impact its GDP growth, said Joe Maher, assistant economist at Capital Economics.

If duties remain at that level, the resulting drop in exports to the U.S. could drag growth both this year and next, Maher said, adding that combined with continued easing inflation, the chances of the central bank resuming its rate cutting cycle this year has increased.

Singapore

Singapore's consumer inflation likely moderated slightly in July, with CPI expected to have risen 0.75% from a year earlier, down from 0.8% in June, according to a WSJ survey of economists using LSEG data.

Core CPI, which is closely watched by the Monetary Authority of Singapore and excludes private transport and housing, likely rose 0.6%, unchanged from June.

Inflation is likely near a bottom, as the Singapore dollar's appreciation has slowed and exerts less downward pressure on prices, ANZ economists Kausani Basak and Khoon Goh said.

While inflation could edge higher later this year due to base effects, it is expected to remain below long-term averages, giving MAS room to adjust policy, they added.

The central bank doesn't have a formal inflation target but considers core inflation just under 2% on average consistent with price stability.

Any references to days are in local times.

Write to Jessica Fleetham at jessica.fleetham@wsj.com and Jihye Lee at jihye.lee@wsj.com