The dollar saw broad-based weakness against the majors last week as the Fed delivered the expected skip. AUD, GBP, and NOK outperformed while JPY underperformed. There will be many Fed speakers this week but it remains to be seen whether the Fed can convince markets that it can indeed hike rates two more times this year. In the meantime, BOE, SNB, and Norges Bank are all expected to hike rates this week and so global liquidity should continue to tighten and global growth should continue to slow.

AMERICAS

The market still does not believe the Fed. Yes, one more rate cut is about 70% priced in for July with the odds rising to 90% in September. However, the second hike that was flagged in the Dot Plots is simply nowhere to be seen in the market pricing, at least not yet. To do so, Fed speakers will have their work cut out for them. On Friday, Waller and Barkin did their part. Waller said “We’re seeing policy rates having some effects on parts of the economy. The labor market is still strong, but core inflation is just not moving, and that’s going to require probably some more tightening to try to get that going down.” Elsewhere, Barkin said “I want to reiterate that 2% inflation is our target, and that I am still looking to be convinced of the plausible story that slowing demand returns inflation relatively quickly to that target. If coming data doesn’t support that story, I’m comfortable doing more.”

Until the market reprices Fed policy, the dollar is likely to remain vulnerable. This is especially true this week given the lack of any top tier U.S. economic data. That will have to wait until next week, when key June readings culminate with the jobs reports Friday. U.S. rates have been creeping higher, but are rising even more in the eurozone and U.K. and thereby helping to boost the euro and sterling. The notable exception is Japan, where the dovish BOJ has depressed JGB yields and given USD/JPY room to move higher.

Fed Chair Powell’s testimony before Congress this week will be key. He appears before the House Financial Services Committee Wednesday and the Senate Banking Committee Thursday. Besides Powell’s testimony, there is an unusually high number of Fed speakers this week. Bullard, Williams, and Barr speak Tuesday. Goolsbee speaks Wednesday. Waller, Bowman, Mester, and Barkin speak Thursday. Bullard and Mester speak Friday. All are expected to maintain the hawkish tone that we believe was the compromise reached for the skip.

Chicago Fed National Activity Index for May will be reported Thursday. It is expected at -0.10 vs. 0.07 in April. A zero reading means the economy is growing around trend. If so, the 3-month moving average would improve to -0.13 vs. -0.22 in April. Recall that when that 3-month average moves below -0.7, that signals imminent recession and we are still well above that threshold. This series has taken on greater significance given that the 3-month to 10-year curve remains deeply inverted. The continued resilience in the economy is noteworthy and suggests the Fed still has more work to do in getting to the desired sub-trend growth. Of note, the Atlanta Fed’s GDPNow model is currently tracking 1.8% SAAR in Q2 vs, 2.2% previously. Next model update will be Tuesday.

We get some key June survey readings this week. S&P reports its preliminary June PMI readings Friday. Manufacturing is expected at 48.5 vs. 48.4 in May, services is expected at 54.0 vs. 54.9 in May, and the composite is expected at 53.5 vs. 54.3 in May. ISM PMIs won’t be reported until the first week of July. Regional Fed surveys for June will continue rolling out. Philly Fed non-manufacturing index will be reported Tuesday. Kansas City Fed manufacturing index will be reported Thursday and its services index will be reported Friday.

Weekly jobless claims Thursday will be of interest. That’s because initial claims will be for the BLS survey week containing the 12th of the month, and are expected at 255k vs. 262k last week. Continuing claims are reported with a one-week lag and are expected at 1.785 mln vs. 1.775 mln last week. Of note, there is not yet a Bloomberg consensus for June NFP but its whisper number is currently at 270k vs. 339k actual in May.

Housing data will be watched for renewed signs of weakness. June NAHB housing market index will be reported Monday and is expected to rise a point to 51. If so, it would be the sixth straight month of improvement to the highest since July 2022. May building permits and housing starts will be reported Tuesday and are expected at 0.6% m/m and -0.1% m/m, respectively. May existing home sales will be reported Thursday and are expected at -0.7% m/m vs. -3.4% in April. The rest of the U.S. data this week are mostly minor. Q1 current account data (-$218.0 bln expected) and May leading index (-0.8% m/m expected) will also be reported Thursday.

Bank of Canada releases its summary of deliberations Wednesday. At the June 7 meeting, it delivered a hawkish surprise and hiked rates 25 bp to 4.75% and noted “Overall, excess demand in the economy looks to be more persistent than anticipated.” It added that “Monetary policy was not sufficiently restrictive to bring supply and demand into balance and return inflation sustainably to the 2% target,” citing what it called an “accumulation of evidence.” Lastly, the bank stressed “Concerns have increased that CPI inflation could get stuck materially above the 2% target.” There was no forward guidance given, which suggests the bank joins many others in being data dependent. WIRP suggests 65% odds of another 25 bp hike July 12 and is fully priced in for September 6. Odds of another 25 bp hike after that top out near 55% December 6 and so a BOC rate cut by year-end is now totally priced out. Updated macro forecasts will be released at the July meeting. April retail sales Wednesday will be the data highlight. Both headline and ex-autos are expected at 0.3% m/m.

EUROPE/MIDDLE EAST/AFRICA

ECB tightening expectations remain elevated after last week’s decision. WIRP suggests a 25 bp hike is nearly priced in July 27, with odds of another 25 bp hike after that topping out around 80% in Q4. This rate path would take the peak deposit rate up to 4.0% vs. 3.75% seen at the start of last week. There are plenty of ECB speakers this week. Simkus, Lane, Schnabel, Villeroy, and Guindos speak Monday. Rehn, Muller, Vujcic, Simkus, and Guindos speak Tuesday. Kazamir, Schnabel, and Nagel speak Wednesday. Panetta and Guindos speak Thursday. Vujcic, de Cos, and Panetta speak Friday. Schnabel speaks Saturday.

Preliminary June PMI readings Friday will be the eurozone data highlight. Headline manufacturing is expected to remain steady at 44.8, services is expected at 54.4 vs. 55.1 in May, and the composite is expected at 52.5 vs. 52.8 in May. Looking at the country composites, Germany is expected at 53.3 vs. 53.9 in May while France is expected at 50.7 vs. 51.2 in May. Italy and Spain will be reported with the final readings in early July.

Bank of England is expected to hike rates 25 bp to 4.75% Thursday. WIRP suggests 15% odds of a larger 50 bp move. Looking ahead, 25 bp hikes are priced in for August, September, November, and December that would see the policy rate peak near 5.75%. Furthermore, there are around 50% odds of one last 25 bp hike in Q1 2024. Updated macro forecasts were just released with the May 11 decision but already seem stale given stubbornly high inflation. Next updates will come with the August 3 decision.

Ahead of the decision, May CPI and public sector net borrowing data and June CBI distributive trends survey will be reported Wednesday. Headline inflation is expected at 8.4% y/y vs. 8.7% in May, core is expected to remain steady at 6.8% y/y, and CPIH is expected to fall a tick to 7.7% y/y. If so, headline would be the lowest since March 2022 but still well above the 2% target. PSNB ex-banking groups is expected at GBP19.5 bln vs. GBP25.6 ln in April. June GfK consumer confidence will be reported Thursday and is expected at -26 vs. -27 in May.

U.K. May retail sales will be reported Friday. Headline sales are expected at -0.2% m/m vs. 0.5% in April, while sales ex-auto fuel are expected at -0.3% m/m vs. 0.8% in April. Preliminary June PMI readings will also be reported Friday. Manufacturing is expected at 46.8 vs. 47.1 in May, services is expected at 54.9 vs. 55.2 in May, and the composite is expected at 53.6 vs. 54.0 in May.

Swiss National Bank is expected to hike rates 25 bp to 1.75% Thursday. However, nearly a third of the analysts polled by Bloomberg look for a 50 bp move and WIRP suggests odds of a larger move are around 35%. President Jordan was very hawkish last week as he said “Inflation is above our threshold for price stability. We have second-round effects, third-round effects, so inflation is more persistent than we initially thought.” Jordan added that the current policy rate of 1.5% “is relatively low, and it’s not a really good idea to wait and then have higher inflation later.” We see risks of a hawkish surprise this week. Looking ahead, a 25 bp hike is priced in for September and odds of another 25 bp hike top out near 65% in March 2024.

Norges Bank is expected to hike rates 25 bp to 3.5% Thursday. However, nearly half the analysts polled by Bloomberg look for a larger 50 bp move. At the last policy meeting May 4, Norges Bank hiked rates 25 bp to 3.25% and said that “Based on the Committee's current assessment of the outlook and balance of risks, the policy rate will most likely be raised further in June.” It noted that “Inflation is high and markedly above the target of 2%” and added that “Higher wage growth and the krone depreciation will contribute to keeping inflation elevated ahead.” New forecasts will be released and we see substantial risks of a 50 bp hike to 3.75% accompanied by a hawkish shift in the expected rate path.

ASIA

Bank of Japan releases the minutes of its April 26-27 meeting Wednesday. The minutes will be very interesting as this was the first meeting under Governor Ueda and the bank dropped its forward guidance for interest rates and launched a review of its policies that will take 12-18 months to complete. Governor Ueda stressed that “We’re not starting the review with the aim of normalizing. But it’s not zero chance we begin normalizing during the review period.” New macro forecasts were released then that showed core inflation remaining at or below the 2% target through FY25, with the bank adding that it sees downside risks to the new FY25 forecast. Last week, the bank delivered a dovish decision that suggest it is in no hurry to remove accommodation. WIRP suggests around 15% odds of liftoff in July, rising to around 25% in September, 50% in October, and falling to 40% in December. BOJ board member Adachi speaks Wednesday and Noguchi speaks Thursday.

Japan data highlight will be May national CPI Friday. Headline is expected at 3.2% y/y vs. 3.5% in April, while core (ex-fresh food) is expected at 3.1% y/y vs. 3.4% in April. Core ex-energy is expected at 4.2% y/y vs. 4.1% in April and shows that lower energy prices are behind the drops in both headline and core. Updated macro forecasts will come at the July meeting and it’s clear that the inflation forecasts will have to be revised significantly higher from the April forecasts. However, Governor Ueda warned last week that higher forecasts don’t necessarily signal imminent tightening.

Preliminary June PMI readings and May department store sales will also be reported Friday. Can the upward trend be sustained when the hard data are softening and regional growth and activity are slowing?

Reserve Bank of Australia releases the minutes of its June meeting Tuesday. At that meeting, it unexpectedly hiked rates 25 bp to 4.10% and so after a pause in April, the RBA delivered back to back hawkish surprises. The bank noted that “The board remains alert to the risk that expectations of ongoing high inflation contribute to larger increases in both prices and wages, especially given the limited spare capacity in the economy and the still very low rate of unemployment.” Looking ahead, it warned that “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe. But that will depend upon how the economy and inflation evolve.” WIRP suggests over 50% odds of a hike July 4 that becomes fully priced in for August 1. Another 25 bp hike is fully priced in for Q4 that would see the policy rate peak near 4.60%. Updated macro forecasts will come at the August meeting. Assistant Governor Kent and Deputy Governor Bullock both speak Tuesday.

Preliminary June PMI readings will be reported Friday. Can the downward trend be turned around when China is slowing significantly?