The New Zealand dollar and British pound emerged as this week's strongest-performing major currencies, while the Swiss franc and Canadian dollar lagged behind their peers. As markets digested the latest economic developments, improving risk sentiment and shifting policy expectations helped drive another week of notable moves across the forex market.
Let's recap what drove the market over the past week before exploring the biggest economic events that could shape forex markets in the days ahead.
What moved the forex market this week?
The New Zealand dollar once again topped the performance table this week, posting gains against most major currencies, while the British pound also enjoyed broad-based strength. In contrast, the Swiss franc was the weakest performer, with the Canadian dollar also losing ground as traders continued to favour higher-risk currencies.
What could move the forex market next week?
The US dollar dominates next week's economic calendar, with inflation, retail sales and housing data all due alongside several speeches from Federal Reserve officials. Elsewhere, the Bank of Canada announces its latest interest rate decision, while the UK and eurozone release important growth and production figures that could influence market sentiment.
Let's explore these currencies in more detail. Below are two images (the Eco Surprise and Eco Strength indices from Edgefinder) that provide an overview of how the respective economies line up relative to one another.
USD – Inflation and Retail Sales Could Drive the Dollar Higher
The US has by far the busiest calendar this week, with Tuesday's CPI report and Thursday's retail sales figures likely to be the biggest market movers.
Headline inflation is expected to slow from 4.2% to 3.9%, while core inflation is forecast to remain unchanged. Retail sales are expected to rebound after last month's softer reading, suggesting consumer spending remains resilient. Traders will also monitor PPI data and numerous Federal Reserve speeches throughout the week for additional clues on the policy outlook.
If the Eco Surprise and Eco Strength indices continue to favour the US economy, another round of resilient data could provide fresh support for the dollar.
CAD – BoC Decision Could Help the Loonie Recover
After another difficult week, the Canadian dollar's attention turns to Wednesday's Bank of Canada interest rate decision.
Markets expect the policy rate to remain unchanged at 2.25%, meaning the central bank's accompanying statement and press conference may have a greater impact than the decision itself. Housing starts later in the week will also provide another snapshot of domestic economic conditions.
Should policymakers strike a more optimistic tone, the loonie could recover some of its recent losses.
GBP – GDP Figures Could Reinforce Sterling's Momentum
Sterling enters the week on the back of another strong performance and now faces several important economic releases.
Thursday's GDP, manufacturing production and industrial production reports will offer a comprehensive update on the UK's economic health. Monthly GDP is expected to return to growth after last month's contraction, while industrial activity is also forecast to improve.
If these expectations are met or exceeded, the pound could remain among the market's stronger currencies.
EUR – Industrial Production Will Test the Recovery Story
The euro's calendar is relatively light but still contains several releases capable of moving the currency.
Wednesday's industrial production figures and Thursday's trade balance data should provide further evidence of whether activity across the eurozone continues to improve. Better-than-expected results would support the view that Europe's recovery is gradually strengthening.
NZD – Strong Momentum Faces a Quieter Week
The New Zealand dollar remains the market's strongest major currency after another impressive week of gains.
Although New Zealand's economic calendar is relatively quiet, the kiwi will still be influenced by broader market sentiment and developments in the US dollar. If global risk appetite remains supportive and the Eco Surprise Index continues to favour New Zealand, the currency could extend its recent outperformance despite the lack of major domestic releases.
Conclusion
The currencies we have highlighted are those with the best chance of some action. However, you are always free to analyse other pairs in the vast forex market.
For a granular look at the most impactful events in the forex economic calendar, read our article here.
