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This weekend’s baffling march on Moscow by the Wagner Group of mercenaries ended without any appreciable impact on global energy prices or broader financial markets. Both the West Texas Intermediate and Brent crude benchmarks are essentially unchanged, equity futures look incrementally softer, and the VIX “fear index” is holding near Friday’s post-pandemic lows.

The yen is modestly stronger after Japanese officials stepped up currency jawboning efforts last night, with Masato Kanda, Vice Minister of Finance for International Affairs, warning that exchange rate moves had become “one-sided” and that he wouldn’t “rule out any options” in dealing with it – language that has historically preceded intervention efforts. Japan last conducted yen-buying operations in October, but measures of volatility were far higher at the time, with the yen often moving more than two cents against the dollar through each 24-hour trading cycle.

Other currencies are generally stable, with the dollar inching lower against the Canadian dollar, euro, and Mexican peso in early trading. The pound is fundamentally flat, while an ongoing deterioration in rate differentials is pushing the Chinese yuan lower even as authorities try to stem selling pressure by setting the fix higher and (possibly) instructing state-owned banks to sell dollars.

Instead, inflation – and central bankers talking about inflation – looks set to dominate the week ahead. 

Canada might kick things off tomorrow morning with slightly softer numbers: Consensus estimates suggest that the annual change in headline consumer prices slipped to 3.4 percent in May after April’s surprisingly-hot 4.4 percent print, with declines in gasoline, food, and tangible goods categories helping alleviate pressure. The Bank of Canada’s preferred core measures should moderate on a year-over-year basis as well, but adjustments related to last year’s one-off price increases could make the month-over-month number more valuable to traders and investors. If core price gains remain consistent with a “melt up” in spending activity, markets will raise odds on a second consecutive rate hike at the central bank’s July meeting.

On Wednesday, Jerome Powell will share the stage with Andrew Bailey, Christine Lagarde, and Kazuo Ueda at a European Central Bank forum in Sintra, Portugal. He will almost certainly reiterate last week’s “higher for longer” message, and markets will almost certainly ignore it, with investors remaining convinced that slowing growth and inflation rates will negate the need for further monetary tightening in the autumn months. Bailey might cut a somewhat pitiable figure, outlining the Bank of England’s strategy for navigating an increasingly stagflationary economic landscape. Madame Lagarde will play the consummate politician, exploring the outlook for a central bank riven by widening divisions between policy hawks – who remain worried about “sticky” inflation – and doves – who are growing more concerned about a growth downturn. The Bank of Japan’s Ueda might be the lone outlier,

Consensus estimates suggest Friday’s euro area consumer price index release will show another sharp drop in headline inflation, but core prices might rise once again. Year-over-year headline price gains are seen slipping to 5.6 percent in June from 6.1percent in May – with energy and food price weakness doing most of the heavy lifting – while seasonal tourism-related factors lift core prices to 5.6 percent from 5.3 percent in the prior month. With other measures of underlying pressures showing clear signs of dropping to the downside (most notably, producer price indices) we think the data might overstate inflation risks, making a post-July rate hike marginally less likely.

Later on Friday, the Fed’s preferred inflation indicator – the core personal consumption expenditures index – is expected to hold steady at 0.4 percent month-over-month, with Chair Powell’s pet measure – the so-called “supercore” measure – rising at a similar pace. If recent high-frequency indicators, retail sales volumes, and May’s strong jobs numbers can be believed, consumer spending decelerated from an outsized 0.8-percent gain in April to something closer to 0.2 percent, but incomes might have posted a 0.3-percent increase, supported by rising employment earnings. This mix is unlikely to reduce the odds on a hike at the Fed’s July meeting, and evidence of resilience in consumer demand could keep terminal rate expectations relatively elevated.

Taken in sum, the week’s data releases – coupled with ongoing hawkish messaging from central bankers – should keep currencies in consolidative ranges, with sliding volatility levels and robust carry returns working against the dollar, even as its major rivals fail to gain the momentum needed for an upside breakout.

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Higher for (even) longer