US inflation data the focus this week

It was a quiet enough end to the week in FX – after a tumultuous start to the week in markets generally – with the main currency pairs confined to tight ranges. While the focus recently has been on the state of the labour market in the US, the attention this week will be on the inflation picture with producer and consumer prices data scheduled for release on Tuesday and Wednesday respectively, while there is a heavy schedule of UK data including wage growth, inflation and GDP. Ahead of the data, the euro and sterling are trading at around $1.0925 and $1.2760 against the dollar respectively this morning, while EURGBP is hovering just about £0.8550

Equity markets gained further ground on Friday to end the week well off last Monday’s lows, while government bond yields edged down. The latter have retreated considerably from their lows of early last week though as stocks have rebounded and the market has priced out the chance of any aggressive near-term cut in interest rates by the Fed.

In a speech over the weekend, Fed Governor Bowman said she is still concerned about some upside risks to inflation and is cautious about making “adjustments to the current stance of (monetary) policy.” She did add, though, that “should the incoming data continue to show that inflation is moving sustainably toward our 2 percent goal, it will become appropriate to gradually lower (interest rates) to prevent monetary policy from becoming overly restrictive on economic activity and employment.”  The market is full priced for a 25bps cut in US rates next month, and sees about about a circa 35% chance of a 50bps move.

The latest Bloomberg survey of economists shows the ECB is expected to lower the deposit rate to 2.25% by the end of 2025, from 3.75% currently, with a 25bps cut expected at next month’s meeting and another quarter-point move seen by the end of this year.

It is quiet on the economic data front today – though as already noted there’s plenty due over the remainder of the week – with the New York Fed scheduled to release its latest survey of consumers’ inflation expectations.