A combination of central bank monetary policy decisions and the Greek debt crisis may be the key drivers in this week's FX trading.
While this week's economic calendar is significantly lighter than the previous, key monetary policy decisions will come from central bank meetings in Japan and Switzerland. Both are expected to hold interest rates steady at their current levels. Tuesday will bring key inflationary data from China as m/m CPI is expected to rise 5.5%. This may induce a fifth interest rate increase from the Chinese central bank. Additional monetary policy tightening may result in a further drag on Chinese equities. The CSI 300 index is down 6% this year and down over 11% since yearly high.
The UK, US, and the euro zone are set to release CPI numbers throughout the week. Both the US and the EU have firmly anchored inflation expectations as was emphasized by their respected central bankers last week. For the UK the Bank of England continues to maintain the position that inflationary pressures will be transitory and is expected to keep interest rates at low levels, though increased volatility may be seen in sterling on Tuesday with the CPI data release.
Market participants will continue to focus on the tiff between Germany and the ECB. This weekend Eurogroup head Jean-Claude Juncker said Greece needs a "soft, voluntary restructuring" of its debt, a proposal backed by German Finance Minister Wolfgang Schauble. This is in stark contrast to the ECB's position against any restructuring which would involve a credit event as defined by the rating agencies. In separate comments on both Thursday and Friday ECB President Trichet clarified the ECB's position. A compromise will be needed prior to the Eurogroup meeting on June 20th or risk losing support from the IMF for Greek agreement. As such the dollar could continue to trade on firmer footing as could the safe haven currencies of the Swiss franc and Japanese yen.
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