We had a host of Fed speakers on Friday evening reinforcing their concern around inflation, which broadly supported USD going into the close on Friday. Data earlier in the day was mixed from the US, with the Michigan sentiment figures coming in lower, but then the 1-year inflation expectations coming in higher. And of course data from the UK in the morning showed that the economy recovered better than expected from the recession last year.
*Daily move - against G10 rates at 7:30am, 13.05.24
** Indicative rates - interbank rates at 7:30am, 13.05.24
Much of the focus this week will fall on US inflation, with PPI numbers released on Tuesday, followed by the CPI number on Wednesday. In recent weeks, central bank speak has reiterated the differential in inflation expectations between Europe and the US, seeing markets price in a rate cut by the Fed later than its European counterparts. A stronger inflation number will keep these expectations for later this year and support USD, but gains could be limited. It's worth noting the recent sensitivity of a weaker USD on soft numbers from the US, and thus should we see lower numbers this week then we would expect GBPUSD and EURUSD to test the recent highs we saw following that weaker non-farm payroll print at the start of the month.
In last week's BoE meeting, Governor Bailey highlighted the importance of upcoming data, so focus for GBP will fall on tomorrow's data from the job market. Current expectations suggest unemployment is set to tick higher to 4.3%, and average weekly earnings growth to ease to 5.5% - i.e., data suggesting the job market is weakening could add to higher odds of a rate cut in June, which would be negative for GBP if this is the case.
Looking at the graphs below, you can see why Fed members remain concerned about inflation with the drop seen since 2022, stagnating since the second half of 2023. April's numbers are expected to show a modest monthly drop in the core number to 0.3%, taking the year-on-year number down to 3.6%.
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