Fed and BoE meetings this week
Stronger than expected US jobs data saw the euro and sterling lose some ground against the dollar on Friday, closing out the week trading a touch below $1.13 and sub-$1.33 respectively (both marginally lower from the previous Friday). They are both firmer this morning though, trading at around $1.134o and $1.3320, while EURGBP remains confined to a tight range, hovering just above £0.85. Meanwhile, there’s been a notable move in the Taiwan dollar, which has gained more than 5% against the US dollar since late last week, amid market speculation that the Taiwan authorities will allow the currency to appreciate to help reach a trade deal with the US. This has spilt over to other Asian currencies, with the Japanese yen for example gaining almost 2% against the (US) dollar over this period.
US government bond yields jumped sharply on Friday following the jobs data, by 10-12bps in the case of 2- and 10-year yields, with the move higher continuing yesterday, as the market pared back expectations regarding the likely scale of Fed rate cuts this year (now around 75bps from circa 100bps). German and UK yields have followed US yields part of the way higher. In equity markets, the S&P 500 in the US ended 0.6%lower yesterday, following a good run last week, while European stocks were little changed.
The US economy added 177k jobs in April according to Friday’s labour market report, ahead of the +138k expected, while the outturn for February-March was revised down by a cumulative 58k. The unemployment rate was unchanged last month at 4.2%, with the y-o-y growth in hourly earnings also unchanged at 3.8%. Whether the labour market can continue to hold up amid the uncertainty caused by Trump’s tariffs remains to be seen. Separately, the ISM services index rose to 51.6 in April (from 50.8 in March), consistent with modestly expanding activity in this sector of the economy.
Looking to the week ahead, the main focus will be on the Fed and Bank of England (BoE) interest rate announcements on Wednesday and Thursday respectively. The Fed is widely expected to keep rates on hold for a third consecutive meeting, while the market fully expects the BoE to cut rates by 25bps for a second time this year. It is a quiet week in terms of economic data. Today sees the release of producer prices and the services PMI (final reading for April) in the Euro area.