• A busy week for major central banks. All poised to stand pat.
• End of the Powell era, Warsh in the wings.
• Trimmed PCE measures take the spotlight.

Heads up: there will be no daily strategy report this week as I’m on the road.

Navigation flow through the Strait of Hormuz remains constrained with no clear endgame to the two-month long US-Iran war. Still, neither side closed the door for further talks as the US open-ended ceasefire holds

Bottom line: crude oil prices will remain supported and the DXY (USD index) can trade closer to the upper end of its nearly one-year 96.00-100.00 range this week. Scope for a downward repricing in Fed funds futures limits USD upside potential.

G10 Central Bank Watch

Bank of Japan (BOJ) policy decision and April Outlook Report on Tuesday. The swaps curve is pricing near certainty that the BOJ holds rates steady at 0.75% for a third straight meeting. Japan’s underlying inflation backdrop supports keeping the policy rate unchanged. The BOJ’s trimmed mean, weighted median, and mode CPI inflation are below the bank’s 2% target. While its three measures of CPI excluding institutional factors (like changes to consumption tax) are converging towards 2%.

The focus will be on whether the BOJ tees up June for the next 25bps rate hike, with odds currently at 65%. Hawkish signals include stronger confidence in wage growth, language pointing to less patience, and two or more dissenting votes in favor of a hike. Japan’s positive output gap (0.45% in Q3 2025) and solid results from the latest spring wage talks argue for a hawkish hold, bringing forward rate hike bets in favor of JPY.

Fed policy decision is Wednesday. The Fed is widely expected to keep the target range for the funds rate at 3.50%-3.75% for a third straight meeting. The vote split is seen holding at 11-1, with Governor Stephen Miran again dissenting for a 25bps cut.

We expect Fed Chair Jay Powell to reiterate that the Fed’s current policy stance is appropriate, implying a high bar to resume easing. Watch out to see if Powell confirms any discussion on the next move being a hike. Remember, the FOMC March meeting minutes highlighted that “many” participants would favor rate increases to help bring inflation down to the 2% target in case of a lengthy war.

The April FOMC meeting will mark Powell’s final one at the helm, but his term as governor will continue until January 2028. Kevin Warsh is expected to take over as Fed Chair from May 15. The Senate banking committee is set to approve Warsh’s nomination on Wednesday, paving the way for a floor vote in the coming weeks. Warsh has broad support from Republican lawmakers after Senator Thom Tillis dropped his blockade over the weekend.

Fed funds futures imply 50% probability of a 25bps cut by December 2026. Our base case is for the Fed to deliver one cut to 3.25-3.50% by year-end, in line with the FOMC’s projection. The US labor market is mixed with risk skewed to the downside, real consumer spending is almost flat in the first two months of the year, and wages are growing in line with the Fed’s 2% inflation goal given productivity growth of 2%.

Bank of Canada (BOC) policy decision and April Monetary Policy Report (MPR) on Wednesday. The BOC is widely expected to keep the policy rate at 2.25% for a fourth straight meeting and reiterate “we stand ready to respond as needed.” The MPR should show higher inflation, weaker growth, and an unchanged neutral range estimate of 2.25% to 3.25%.

The swaps curve has trimmed BOC rate hike bets over the next twelve months from as much as 75bps on March 26 to 44bps currently. BOC rate hike bets should ease further given that underlying inflation and long-term inflation expectations remain contained.

European Central Bank (ECB) policy decision is Thursday. The ECB is widely expected to keep the policy rate at 2.00% for a seventh straight meeting. The focus will be on whether ECB President Christine Lagarde paves the way for a 25bps rate hike in June, with odds currently at over 80%.

Lagarde recently stressed that the Eurozone economic outlook is between the ECB’s adverse scenario and the baseline. If so, that would be consistent with a measured tightening response as implied by the swaps curve (60bps of hikes to between 2.50% and 2.75% over the next 12 months).

Bank of England (BOE) policy decision and April Monetary Policy Report (MPR) on Thursday. The BOE is widely expected to keep the policy rate at 3.75% for a third straight meeting and reiterate that “it stands ready to act as necessary.” After a unanimous hold in March, the risk shifts to a 7-2 vote, with the two dissenters seen favoring a 25bps hike (Catherine Mann and Huw Pill).

The swaps curve is pricing nearly 75bps of rate hikes over the next twelve months to 4.50%. BOE rate hike bets are too rich in our view given excess slack in the economy. In February, the BOE estimated a negative output gap of -1% of GDP in 2026. The MPR will include an update of that estimate.

US PCE and GDP on Deck

US March PCE to overshoot the FOMC’s projection (Thursday). Headline PCE is seen rising sharply by 0.7% m/m to be up 3.5% y/y vs. 2.8% in February due to the surge in gasoline prices. Core PCE is expected to rise 0.3% m/m to be up 3.2% y/y vs. 3.0% in February. In March, the median 2026 FOMC projection for both headline and core PCE was 2.7%.

Regardless, provided that trimmed PCE measures – Kevin Warsh’s favorite gauge of underlying inflation - continue to converge towards the Fed’s 2% goal, the Fed has room to resume easing. In February, the Dallas Fed trimmed mean PCE printed at 2.3% y/y, while the Cleveland Fed median PCE was 2.8% y/y. The trimmed mean and median remove outliers to provide a clearer picture of prices.

US Q1 advanced GDP (Thursday). Real GDP is expected at 2.2% SAAR vs. 0.5% in Q4. The Atlanta Fed GDPNow model estimates Q1 growth at 1.2% SAAR while the New York Fed GDP nowcast model pencils in growth at 2.4% SAAR. Of note, S&P Global pointed out that the US April PMI is broadly consistent with the economy struggling to manage growth in excess of 1% SAAR.

Pay attention to real final sales to private domestic purchasers, the sum of consumer spending and gross private fixed investment. That measure of underlying domestic private-sector demand slowed to a three-year low at 1.8% SAAR in Q4, supporting the case for additional Fed funds rate cut.

Other noteworthy US data in the pipeline this week include: ADP employment change for the week ending April 11 (Tuesday), April Conference Board consumer confidence (Tuesday), and April ISM manufacturing (Friday).

Eurozone Stagflation Check

Eurozone Q1 GDP and April CPI are due Thursday. Real GDP is projected at 0.2% q/q (ECB projection: 0.3%) vs. 0.2% in Q4, with the war’s full effects not yet showing through. Leading indicators (IFO, PMI) point to a deteriorating growth outlook with real GDP seen contracting by -0.1% over Q2.

Eurozone headline CPI is expected to rise 0.4pts to 3.0% y/y while core CPI is expected to dip -0.1pts to 2.2% y/y. The ECB’s baseline 2026 forecasts for headline and core CPI inflation are 2.6% and 2.3%, respectively. EUR/USD is vulnerable to a move lower towards 1.1500 in the near term undermined by Eurozone stagflation risk.

Australia CPI to Back RBA May Hike

Australia March and Q1 CPI are due Tuesday. Headline CPI is expected at 4.8% y/y in March vs. 3.7% in February while trimmed mean CPI is expected to print at 3.3% y/y for a fourth consecutive month. The monthly CPI is Australia’s primary measure of inflation, but the RBA continues to focus on measures of underlying inflation from the quarterly CPI. Trimmed mean CPI is seen at 3.5% y/y in Q1 vs. 3.4% in Q4, locking in a third consecutive 25bps RBA rate hike at the next May 5 meeting (nearly 80% priced in). AUD/USD needs to break above 0.7200 to gain upside momentum.