Focus Remains On Fedspeak In Absence Of High-Impact Data Today

Stop-start sell-off

GBP

Sterling continues to witness a stop-start sell-off, where Friday's release of a stronger-than-expected first quarter GDP figure for 2024 managed to give Sterling some support. ING Bank doubt this better-than-expected reading has too much impact on Bank of England thinking – beyond perhaps giving it some room for patience on policy. And they retain their downside bias for Sterling over the coming quarters.

The highlight of the UK calendar this week is the March jobs data released tomorrow. However, the BoE has downplayed the importance of these figures, and the timing of the 2024 BoE easing cycle seems to hang entirely on the release of UK April services CPI on the 22nd of May.

No Major Data

Market starting to question three ECB rate cuts this year

EUR

In quiet conditions, the market is very gently questioning whether the European Central Bank needs to cut rates three times this year after all. Currently, the market prices 68bp of easing, having spent the majority of 2024 pricing more than 75bp. Three rate cuts this year remains the call for ING Bank, but the risk is two.

The Eurozone data calendar will probably not have a big say in that pricing this week, although the market will be interested in whether the provisional release of first quarter Eurozone GDP for this year does get revised from its encouraging 0.3% quarter-on-quarter level. That revision will be released on Wednesday.

EUR/USD fluctuates in a relatively tight channel above $1.0750 to start the new week however inflation data from the US could trigger a big reaction.

No Major Data

Dollar steady as US inflation data takes spotlight

USD

We see two key drivers of the Dollar this week. The first is US April price data released on Tuesday (PPI) and Wednesday (CPI). After the dovish FOMC meeting and the soft April Non Farm Payroll sucked the momentum from the Dollar's upside, the question is whether price data can actively contribute to the Dollar's downside. The bigger risk of that probably comes tomorrow, where any softer PPI readings could point to a lower core PCE deflator figure (the Federal Reserve's preferred inflation reading) on the 31st of May. Most expect a better 0.3% month-on-month core CPI reading on Wednesday – but again, that's not good enough for the Fed's 2% per annum inflation target.

Also important for FX markets this week will be US-China relations plus the (albeit small) risk of a rate cut in China on Wednesday. On the former, tomorrow the White House is widely expected to announce large tariff increases on US imports of Chinese electric vehicles (EVs), solar panels, and batteries. How China responds to such tariffs may have an impact on USD/CNH, where the risk is seen to the topside this week. Additionally, a subdued inflation environment and weak growth are raising speculation over a possible China rate cut.

But as above, the US data does the talking this week.

No Major Data