Upcoming Week: US Inflation Figures to Impact Fed Rate Cut Speculation

As speculators pin their hopes on a potential Fed rate cut, all eyes are on the upcoming US inflation data. Following a dovish stance from the Bank of England, pound traders are now closely monitoring UK job numbers. Meanwhile, anticipation builds as the Reserve Bank of Australia contemplates its next move amidst a robust labor market. Additionally, as signs of a sluggish start to the second quarter emerge, investors eagerly await more Chinese data releases.

US CPI Data Takes Center Stage

At the recent Fed meeting, Chair Powell’s less hawkish stance surprised many by ruling out rate hikes and hinting at possible cuts, a sentiment echoed by other policymakers following a softer-than-expected April jobs report. However, Minneapolis Fed President Neel Kashkari diverged, suggesting rates could remain steady for the year. Traders are now eyeing the upcoming US CPI data for April, expecting potential downside risks due to moderate output price growth and a decline in year-on-year oil price changes. If April’s inflation data indicates a cooling trend, traders may adjust expectations, potentially impacting Treasury yields and the US dollar negatively. Additionally, Tuesday’s release of April PPIs and retail sales figures alongside the CPI data will offer further insights into the Fed’s trajectory.

UK Jobs Data: Key to Summer BoE Rate Cut?

The Bank of England took a more dovish stance than anticipated, holding interest rates steady while two members advocated for a 25bps cut. With a statement indicating a willingness to assess forthcoming data, particularly regarding inflation risks, officials hinted at ongoing softening inflation. This led to a slight decline in the pound as markets increasingly priced in a potential rate cut in August. Attention now shifts to Tuesday’s release of UK employment data for March, with a focus on wage growth. Any further softening in wages could bolster expectations of inflation slowing, potentially extending the pound’s decline and prompting speculation about a June rate cut.

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