The dollar put in a mixed performance against the majors last week. AUD, CAD, and SEK outperformed while JPY, EUR, and GBP underperformed. We expect U.S. data this week to confirm that the trade war is having an impact on growth. Elsewhere, the Fed is expected to deliver a hawkish hold. In short, the backdrop remains difficult for the greenback.
AMERICAS
The U.S. economy remains resilient. Despite expectations of a far weaker number, BLS reported that 177k jobs were created in April. This was the first hard data to reflect the tariff impact and the overall readings suggest that the economy remains on relatively solid footing. As a result, Fed easing expectations have been pushed out. Odds of a May cut have fallen to less than 5%, rising to around 35% in June and fully priced in for July. With the 90-day pause in reciprocal tariffs set to end in early July, even that month seems too soon for a cut given the ongoing uncertainty regarding the tariff impact. Looking ahead, the swaps market is pricing in 100 bp of total easing over the next 12 month, down from 125 priced in last week.
The two-day FOMC meeting ends Wednesday with an expected hold. The Fed is expected to unanimously vote to keep the target range for the Fed Funds rate unchanged at 4.25-4.50%. The next Summary of Economic Projections are due at the June 17-18 meeting. While the Fed should not give any hints about easing, the risk is that Chair Powell tilts dovish as survey data point to a worsening U.S. growth outlook. On the other hand, the April jobs report supports the view that the Fed can afford to remain patient. There will be plenty of Fed speakers after the decision. Williams (twice), Barr, Kugler, Goolsbee, Waller, Musalem, Hammack, and Cook all speak Friday.
Data highlight will be April ISM services PMI Monday. Headline is expected at 50.3 vs. 50.8 in March. If so, it would be the lowest since June 2024 and nearing the key 50 boom/bust level. Keep an eye on prices paid, which is expected at 61.4 vs. 60.9 in March. The regional Fed ISM services prints point to downside risk. Of note, the US S&P Global services PMI fell 3 points to 51.4 in April.
The Q2 growth outlook is mixed. The Atlanta Fed GDPNow model now has Q2 growth at 1.1% SAAR vs. the initial estimate of 2.4%. It will be updated Tuesday after the data. Elsewhere, the New York Fed Nowcast model has Q2 at 2.3% SAAR and will be updated Friday and its initial Q3 estimate will come at the end of May. For those keeping score at home, the gold-adjusted Atlanta Fed GDP model’s Q1 estimate of -1.5% SAAR was the closest to the actual initial Q1 reading of -0.3%, and that gold-adjusted model is now the standard one.
Q1 unit labor costs and nonfarm productivity will be reported Thursday. Productivity (GDP/hours worked) is expected at -0.7% SAAR vs. 1.5% in Q4, while ULC is expected at 5.2% SAAR vs. 2.2% in Q4. The more policy-relevant wage data from the employment cost index showed wages & salaries growth eased in Q1 to near a four-year low of 3.5% y/y vs. 3.8% in Q4. The implication is that wage growth is consistent with the Fed’s 2% inflation stability goal as annual productivity growth is running close to its post-war average of 2.1%.
April New York Fed inflation expectations will also be reported Thursday. In March, 1-year expectations rose to a 17-month high of 3.58% vs. 3.13% in February, while 3- and 5-year expectations remained anchored near 3%. However, the timelier University of Michigan consumer inflation expectations survey suggests long-term inflation expectations are becoming unanchored. Inflation expectations 5-10 years out surged to 4.4% in April, the highest since June 1991.
Bank of Canada annual Financial Stability Report Thursday. The 2024 report concluded that Canada’s financial system remained resilient while warning that higher debt serviceability and stretched asset valuations were the two key risks to stability. The updated report will likely be expanded to assess how trade uncertainty is affecting the Canadian financial system.
Canada highlight will be April jobs data Friday. Consensus sees a 2.5k rise in jobs vs. -32.6k in March, while the unemployment rate is expected to rise a tick to 6.8%. Tariffs and uncertainty about trade policy are disrupting the recovery in the labor market that began in late 2024. The number of job postings on Indeed has decreased since mid-January and the Bank’s business survey indicate firms are scaling back hiring. Markets are pricing in 50 bp of total easing over the next 12 months that would see the policy rate to bottom near 2.25%. This seems about right. Of note, the BOC’s scenario analysis shows Canada’s real GDP growth either stalling in Q2 or contracting over the remainder of 2025.
Canada April PMIs will also be reported. S&P Global services and composite PMIs will be reported Monday. Last week, its manufacturing PMI came in at 45.3 vs. 46.3 in March. Ivey PMI will be reported Tuesday.
EUROPE/MIDDLE EAST/AFRICA
Bank of England meets Thursday and is expected to cut rates 25 bp to 4.25%. It is widely expected to cut rates 25 bp to 4.25%. The quarterly Monetary Policy Report will be released at the same time. Most indicators of near-term activity have declined, while services inflation is cooling faster than the BOE’s projection. There is a risk that at least one MPC member supports a larger 50 bp cut. The usual suspect is staunch dove Swati Dhingra. Otherwise, we expect the BOE to stick to its guidance of “a gradual and careful approach” to further rate cuts. Markets are pricing in a total 100 bp of easing over the next 12 months that would see the policy rate to bottom near 3.50%. This seems about right.
Governor Bailey and Chief Economist Pill speak Friday.
April DMP inflation expectations will be reported Thursday. 1-year expectations are expected to pick up a tick to 3.5%, the highest since January 2024. In March, 3-year expectations picked up three ticks to 3.0% in February, the highest since November 2023. Both series are moving further above their series lows of 2.5% in October 2024 and will likely keep the Bank of England on a cautious easing path.
Eurozone reports final April services and composite PMIs Tuesday. Italy and Spain report for the first time and their composite PMIs are expected to fall from March to 50.2 and 53.0, respectively. Any downside surprises could push the eurozone composite below the 50 boom/bust level.
Switzerland reports April CPI data Monday. Headline is expected to slow a tick to 0.2% y/y, while core is expected to slow a tick to 0.8% y/y. For reference, the Swiss National Bank projects headline CPI inflation to average 0.3% in Q2. At its last March 19 meeting, the SNB trimmed the policy rate 25 bp to 0.25%. President Martin Schlegel highlighted that “this rate cut has an expansionary impact…In that sense, the probability of additional policy easing is naturally lower.” However, the downside risk to Switzerland’s economy from trade policy uncertainty and CHF outperformance in recent months have raised odds of more SNB rate cuts. The market is pricing in nearly 50 bp of easing in the next 12 months that would see the policy rate bottom near -0.25%.
Sweden reports April CPI data Wednesday. Headline is expected to remain steady 0.5% y/y, CPIF is expected to pick up two ticks to 2.5% y/y, and CPIF ex-energy is expected to pick up two ticks to 3.2% y/y. Inflation is stabilizing above the Riksbank’s 2% target, suggesting the bar for additional rate cuts is high. Riksbank meets Thursday and is expected to keep rates steady at 2.25%. The next Monetary Policy Report will be published in June. At its last March 20 meeting, the Riksbank kept the policy rate steady at 2.25% and signaled it was done easing. However, the swaps market disagrees and is pricing in 25-50 bp of further easing over the next 12 months.
Norges Bank meets Thursday and is expected to keep rates steady at 4.5%. At its last March 26 meeting, the Norges Bank kept rates steady at 4.50% and stressed that “a restrictive monetary policy is still needed to bring inflation down to target within a reasonable time horizon.” The swaps market is pricing in 100 bp of easing over the next 12 months that would see the policy rate bottom near 3.5%. For comparison, the Norges Bank forecasts 50 bp of easing by year-end to 4.0%, followed by a gradual decline to 3.0% by the end of 2028. The next Monetary Policy Report will be published in June. Norway reports April CPI data Friday. Headline is expected to slow a tick to 2.5% y/y, while underlying is expected to slow two ticks to 3.2% y/y. Underlying inflation has picked up in recent months and supports the Norges bank decision to delay the start of ease policy.
ASIA
Bank of Japan releases the minutes to its March meeting Thursday. At that meeting, the BOJ left the policy rate unchanged at 0.50% as was widely expected. The decision was unanimous, and the bank reiterated its tightening bias. At its more recent May 1 meeting, the BOJ left the policy rate unchanged at 0.50%. The decision was unanimous. The BOJ also reiterated its hawkish guidance that it will continue to raise the policy rate if the outlook for economic activity and prices will be realized. However, the BOJ’s more dovish growth and inflation outlook curtailed rate hike expectations. The swaps market is pricing in just one 25 bp hike to 0.75% over the next three years.
Japan highlight will be March cash earnings data Friday. Nominal cash earnings are expected at 2.6% y/y vs. 2.7% in February while real earnings are projected at -1.4% y/y vs. -1.5% in February. The less volatile scheduled pay growth for full-time workers is forecast at 2.2% y/y vs. 2.0% in February. These readings do not suggest any need to tighten again soon.
New Zealand highlight will be Q1 employment data Wednesday. Employment is expected at 0.1% q/q vs. -0.1% in Q4, whereas the RBNZ has penciled in no change. The unemployment rate is expected to rise two ticks to 5.3% vs. the RBNZ forecast of 5.2%. Private wages are anticipated at 0.5% q/q vs. 0.6% q/q in Q4 and marginally lower that the RBNZ 0.6% projection. Labor market conditions have weakened reflecting subdued economic activity. At its April 8 meeting, the RBNZ cut rates 25 bp to 3.50% and noted it “has scope to lower the OCR further as appropriate.” The RBNZ warned that “the recently announced increases in global trade barriers weaken the outlook for global economic activity. On balance, these developments create downside risks to the outlook for economic activity and inflation in New Zealand.” The swaps market is pricing in 75 bp of easing over the next six months that would see the policy rate bottom near 2.75%. The risk is the RBNZ slashes the OCR towards the lower end of its 2% to 4% neutral range estimate.
RBNZ publishes six-monthly Financial Stability Report Tuesday. The November report stressed that financial stability risks remain contained despite weakness in the domestic economy and rising unemployment. Banks were in a strong financial position to manage loan defaults.
