The dollar put in a mixed performance last week against the majors. CHF, NZD, and AUD outperformed, while EUR, JPY, and GBP underperformed. The dollar smile remains in play and so the dollar is likely to continue gaining on a hawkish Fed and ongoing political uncertainty in the eurozone.

AMERICAS

The dollar smile remains in play. Price action last week saw the dollar gain on both the hawkish Fed and the risk off impulses emanating from Europe. Both of these drivers are likely to remain in play this week and so the dollar rally should continue. DXY traded Friday at the highest since May 2 and is on track to test the April-May highs near 106.50.

The market still doesn’t believe the Fed. The Fed now sees only one cut in 2024 but the market is still fully pricing in two. Of course, it will all depend on the data. June CPI (out July 11) and PCE (July 26) will come before the July 30-31 FOMC meeting. Another good month of inflation data then could put that meeting more in play, where the market currently sees around 10% odds of a cut. The Fed will then wait for July CPI (out August 14) and PCE (August 30) before deciding on a possible cut at the September 17-18 meeting, where the odds are now around 75%. Williams, Harker, and Cook speak Monday. Barkin, Collins, Logan, Kugler, Musalem, and Goolsbee speak Tuesday. Kashkari, Barkin, and Daly speak Thursday. Most are expected to toe the hawkish line that was set forth last week.

May retail sales data Tuesday will be the highlight. Headline is expected at 0.3% m/m vs. flat in April, while ex-autos is expected to remain steady at 0.2% m/m. The so-called control group used for GDP calculations is expected at 0.4% m/m vs. -0.3% in April. Of note, the y/y rates remain fairly robust. While there has been some softening, consumer spending is still supported by robust demand for labor and positive real wage growth.

Surveys for June start rolling out. S&P Global PMIs will be reported Friday. Manufacturing is expected at 51.0 vs. 51.3 in April, while services is expected at 53.4 vs. 54.8 in April. If so, the composite would drop significantly from 54.5 in April. ISM PMIs won’t be reported until the week after next.

Regional Fed surveys for June start rolling out. Empire manufacturing survey kicks things off Monday and is expected at -11.3 vs. -15.6 in May. New York Fed services will be reported Tuesday. Philly Fed manufacturing will be reported Thursday and is expected at 4.8 vs. 4.5 in May.

Weekly jobless claims will be of interest. That’s because initial claims will be for the BLS survey week containing the 12th of the month. These are expected at 235k vs. 242k last week. That was the highest since mid-August 2023 and pulled the 4-week moving average up to 227k, the highest since mid-September 2023. Elsewhere, continuing claims are reported with a one-week lag and are expected at 1.802 mln vs. 1.820 mln last week. That was the highest since mid-January. Bloomberg consensus for June NFP is 200k vs. 272k in May, while its whisper number stands at 215k.

Housing data will be reported. June NAHB housing market index will be reported Wednesday and is expected to remain steady at 45. May building permits and housing starts will be reported Thursday and are expected at 0.7% m/m and 1.1% m/m, respectively. May existing home sales will be reported Friday and are expected at -1.2% m/m vs. -1.9% in April.

Bank of Canada releases the summary of its deliberations Wednesday. At the June 5 meeting, the BOC started the easing cycle with 25 bp cut to 4.75% and noted “if inflation continues to ease, and our confidence that inflation is headed sustainably to the 2% target continues to increase, it is reasonable to expect further cuts to our policy interest rate.” Still, Governor Macklem warned the easing path will be gradual and data dependent, adding that Canada still needs restrictive policy and so the summary is unlikely to offer more information about the path of interest rates. The BOC will not release updated forecasts until the July 24 meeting. A rate cut then is 70% priced in while September is fully priced in.

Canada data highlight will be April retail sales Friday. Headline is expected at 0.7% m/m vs. -0.2% in March, while ex-autos is expected at 0.6% m/m vs. -0.6% in March. Statistics Canada’s advanced retail indicator suggests sales increased 0.7% m/m in April. Overall, the economy is slowing and supports further easing by the BOC.

EUROPE/MIDDLE EAST/AFRICA

ECB officials so far seem unconcerned with developments in France. Reports suggest the ECB sees no cause for alarm from the market turbulence that has hit France in the past few days. Even though the crisis has led peripheral spreads to widen out last week, policymakers for now view it as contained. Sources also said no crisis tools have even been considered at this time.

ECB officials remain cautious about further easing. Despite this, the market sees 80% odds of a cut in September and has nearly priced in another cut in December. Lane, Lagarde, Guindos, and Makhlouf speak Monday. Knot, Vujcic, Cipollone, Guindos, and Villeroy speaks Tuesday. Centeno speaks Wednesday. Nagel speaks Friday.

Preliminary June PMIs Friday will be the eurozone data highlight. Headline manufacturing PMI is expected at 47.9 vs. 47.3 in May, services is expected at 53.5 vs. 53.2 in May, and the composite is expected at a one year high of 52.5 vs. 52.2 in May. Looking at the country breakdown, the German composite is expected at 52.8 vs. 52.4 in May and the French composite is expected at 49.7 vs. 48.9 in May. Italy and Spain will be reported with the final readings in early July.

Germany reports June ZEW survey Tuesday. Expectations component is expected at 49.5 vs. 47.1 in May, while current situation is expected at -65.0 vs. -72.3 in May. Confidence measures have been rising in recent months, which is consistent with a further modest recovery in eurozone GDP growth.

Bank of England meets Thursday and is expected to keep rates steady at 5.25%. Governor Bailey warned last month (before Prime Minister Sunak called a general election for July 4) that a June rate cut is “neither ruled out nor a fait accompli”. However, a surprise rate change during an election campaign is unlikely. Importantly, we anticipate the MPC vote split to remain 7-2 in favor of no rate cut, with Ramsden and Dhingra voting again for a 25 bp cut. We also expect the BOE to reiterate that “monetary policy will need to remain restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term.” There are no update macroeconomic projections until the August meeting, which is our base case is for the start of an easing cycle. The swaps market sees 50-50 odds of a cut then.

U.K. data highlight will be May CPI Wednesday. Headline is expected at 2.0% y/y vs. 2.3% in April, core is expected at 3.5% y/y vs. 3.9% in April, and CPIH is expected at 2.8% y/y vs. 3.0% in April. If so, headline would be at the 2% target for the first time since July 2021 and supports our view that the BOE should cut sooner rather than later. Services inflation is expected to ease to 5.5% y/y vs. 5.9% in April.

U.K. retail sales data Friday will also be important. Headline is expected at 1.6% m/m after a weather-related -2.3% slump in April, while sales ex-auto fuel is expected at 1.3% m/m vs. -2.0% in April. The Bank of England projects consumption spending to be a modest tailwind to growth over Q2, supported by positive real wage growth and improving consumer confidence.

U.K. preliminary June PMIs Friday will also be important. Headline manufacturing is expected at 51.3 vs. 51.2 in May, services is expected at 53.0 vs. 52.9 in May, and the composite is expected at 53.2 vs. 53.0 in May.

Swiss National Bank meets Thursday and consensus sees rates kept steady at 1.5%. However, the market is split. The swaps market sees 70% odds of a 25 bp rate cut this week to 1.25%. Meanwhile, half of the analysts polled by Bloomberg look for a rate cut. Our base case is that the SNB delivers another 25 bp rate cut after starting the easing cycle back in March with a 25 bp cut. Inflation remains well under 2% and is tracking the SNB’s March forecast. We don’t expect material revisions to the SNB’s new inflation projection, in part because of the recent recovery in the trade-weighted Swiss franc exchange rate.

Norges Bank meets Thursday and is expected to keep rates steady at 4.5%. Updated macro forecasts will be released. At the last meeting May 3, it delivered a hawkish hold. It kept rates steady at 4.5%, as expected, but reiterated that the policy rate will continue to lie at the current level “for some time ahead.” Norges Bank also noted that “the data so far could suggest that a tight monetary policy stance may be needed for somewhat longer than previously envisaged.” At the March meeting, the Norges Bank signaled it would gradually start easing from Q3, but we do not think it is in any rush to loosen policy. The market sees some odds of a cut over the next six months and sees nearly 75 bp of total easing over the next 12 months.

ASIA

Japan highlight will be May national CPI data Friday. Headline is expected at 2.9% y/y vs. 2.5% in April, core (ex-fresh food) is expected at 2.6% y/y vs. 2.2% in April, and core ex-energy is expected at 2.2% y/y vs. 2.4% in April. Despite this hiccup, underlying inflation is in a firm downtrend and nearing the BOJ’s 2% target. As such, the bar for an aggressive BOJ tightening cycle is high and remains a drag for JPY. After the BOJ’s dovish hold last week, the market is pricing in only 60 bp of tightening over the next three years vs. 75 bp before the decision.

Preliminary June PMIs Friday will also be important. The composite reading of 52.6 in May was the highest since August.

Minutes of the April 25-26 meeting will be released Wednesday. At that meeting, the bank delivered a dovish hold after hiking rates at the previous meeting March 18-19. While updated macro forecasts were released then, we do not expect to learn much about the policy trajectory since the BOJ already followed up with another dovish hold last week.

May trade data will also be reported Wednesday. Exports are expected at 12.8% y/y vs. 8.3% in April, while imports are expected at 9.6% y/y vs. 8.3% in April.

Reserve Bank of Australia meets Tuesday is expected to keep rates steady at 4.35%. We also anticipate the RBA to stick to its neutral policy guidance that “the Board is not ruling anything in or out.” Following the May 7 meeting, Governor Bullock confirmed that the board discussed the option of raising rates. This option will likely remain on the table this week as April trimmed mean CPI still has a four in front of it and the labor market remains tight. The market does not fully price in a cut until the February meeting.

Preliminary June PMIs will also be important. Manufacturing will be reported Thursday. Services and composite PMIs will be reported Friday. The composite PMI has fallen two straight months.

New Zealand highlight will be Q1 GDP data Thursday. Growth is expected at 0.1% q/q vs. -0.1% in Q4, while the RBNZ projects it at 0.2% q/q. The decline in the ANZ Own Activity Outlook index to a ten-month low in May points to weaker growth ahead. Regardless, the RBNZ is in no rush to loosen policy partly because services inflation is receding slowly. The RBNZ has a first policy rate cut penciled in for Q3 2025. However, the market has fully priced in a cut this November.

New Zealand Q1 current account data Wednesday will also be of interest. The deficit is expected at -6.8% of GDP vs. -6.9% in Q4. If so, it would be the fifth straight quarterly improvement from the -8.8% peak in Q4 2022.