The FOMC & NFP Take Centre Stage This Week

Pound Sterling buyers turn cautious as the Fed verdict looms

GBP

The GBP/USD pair holds positive ground near $1.2520 on Monday during the early Asian session. The uptick of the major pair is supported by the softer US Dollar (USD) below the 106.00 psychological mark. Investors will closely monitor the Federal Open Market Committee (FOMC) interest rate decision and Press Conference on Wednesday.

On the other hand, investors raise their bets that the Bank of England (BoE) will start lowering borrowing costs in its June meeting. The BoE Governor Andrew Bailey said during the press conference after the last monetary policy meeting that two or three rate cuts this year are not "unreasonable." A dovish shift in the BoE remarks might lead to a weaker Pound Sterling (GBP) and create a headwind for the pair.

No Major Data

EUR: Inflation to endorse June cut

EUR

Inflation data in the Eurozone will be released in the first half of this week. Spain and Germany publish their April CPI reports this morning, while the Eurozone-wide flash estimate is due tomorrow and is expected to remain unchanged at 2.4% year-on-year. The focus, however, will be on core CPI, which is expected to slow further from 2.9% to 2.6% YoY. The Eurozone’s advanced first quarter GDP figures are also due tomorrow.

ING Bank expect inflation figures to confirm the European Central Bank's diverging path from that of the Fed and consolidate expectations that the Governing Council will proceed with a first cut in June. It will be interesting to hear what ECB speakers have to say about the inflation releases this week. Pablo Hernández de Cos, Philip Lane, and Luis de Guindos are all due to speak today. Another slowdown in Eurozone core inflation should instead solidify ECB rate cut bets and prompt a weaker Euro. The risks appear skewed to a return to sub-$1.0700 today or tomorrow.

Data:

13.00: German CPI (MoM & YoY), German HICP (MoM & YoY)

USD: Data to prove more important than the Fed

USD

The Dollar ultimately reconnected with higher yields on Friday, but a market now exploring the narrative of no easing by the Federal Reserve in 2024 should keep the door open for more Dollar strength. The Fed announces its policy decision on Wednesday, there are some key US data releases (including payrolls on Friday), and we may have finally seen FX intervention in Japan.

The FOMC starts its two-day meeting tomorrow and, on Wednesday, the US Federal Reserve (Fed) is expected to leave the interest rate unchanged in its current 5.25%–5.50%. The US economy remains strong, and inflation has started to turn higher. On Friday, the US Bureau of Economic Analysis showed the Core Personal Consumption Expenditures (PCE) Price Index rose 2.8% YoY in March. These reports have triggered speculation that the first cut might not come until September. The Fed policymakers noted that rate cuts are not coming in the next several months as inflation was stickier than expected and remains above the Fed’s 2% target. The higher-for-longer stance from the US central bank might provide some support to the Greenback and cap the downside of the GBP/USD pair.

Friday’s jobs report is the week's biggest event – probably more important than the Fed meeting. The NFIB small business hiring survey and the ISM employment index are pointing to a slowdown in employment gains in the second quarter, and ING Banks Economics Team expects a 210k payroll print versus 250k consensus. They also think the Dollar is more likely to lose some ground because of payrolls than because of the Fed if anything. Before key risk events take over, they still favour another leg higher in the Greenback.

No Major Data