The dollar saw broad weakness against the majors last week. CHF, SEK, and NOK outperformed while JPY, EUR, and GBP underperformed. The ECB and BOC are both expected to begin cutting rates this week, while U.S. data this week should confirm a hawkish hold from the Fed next week. Developments should underscore the monetary policy divergences that remain in play and favor the dollar.

AMERICAS

The data and Fed comments last week support our view that the Fed is nowhere close to cutting rates. Now, all eyes turn to this week’s key data for May. The Fed’s media blackout is in effect and so there will be no speakers until Chair Powell’s post-decision press conference next Wednesday. Before the blackout, Fed officials all stayed on message about being patient and so the market sees the first cut coming in November.

Data highlight will be the jobs report Friday. Bloomberg consensus sees 190k jobs added vs. 175k in April, while its whisper number stands at 189k. The unemployment rate is expected to remain steady at 3.9%. With the supply of workers and the demand for labor coming into better balance, the pace of wage growth will probably be a bigger driver of U.S. interest rate expectations. Average hourly earnings are forecast to rise 0.3% m/m vs. 0.2% in April and remain at 3.9% y/y. Ahead of the jobs report, ADP releases its estimate of private sector jobs and is expected at 175k vs. 192k in April.

Q2 growth remains solid. The Atlanta Fed’s GDPNow model is tracking Q2 growth at 2.7% SAAR and will be updated Monday after the data. Elsewhere, the New York Fed’s Nowcast model is tracking Q2 growth at 1.8% SAAR and will be updated Friday. It should also release its first estimate for Q3 growth Friday.

Other labor market data will be reported. May JOLTS data will be reported Tuesday and job openings are expected at 8.360 mln vs. 8.488 mln in April. Openings have been trending lower but not by enough to lead to a higher unemployment rate. The job opening rate remains above the 4.5% threshold that’s consistent with a significant increase in the unemployment rate. Moreover, the ratio of job vacancies to people looking for work has come into better balance. May Challenger job cuts and weekly jobless claims will be reported Thursday.

ISM PMIs for May will also be important. Manufacturing will be reported Monday and headline is expected at 49.6 vs. 49.2 in April. Keep an eye on prices paid, which is expected at 59.5 vs. 60.9 in April. Services will be reported Wednesday, and headline is expected at 51.0 vs. 49.4 in April. Last week, the Chicago PMI continued to drop to multi-year lows. However, we put more weight on S&P Global PMIs, as manufacturing PMI rose to 50.9 in May vs. 50.0 in April and its services PMI rose to a 12-month high of 54.8 in May.

Bank of Canada meets Wednesday and is expected to cut rates 25 bp to 4.75%. However, the market is split. Over a third of the 30 analysts polled by Bloomberg see steady rates, while WIRP suggests 80% odds of a cut. We think the BOC will deliver a cut. First, Q1 GDP growth of 1.7% SAAR undershot the BOC’s projection of 2.8% by a wide margin, while Q4 growth was slashed 0.9 ppts to just 0.1% SAAR. Second, inflation is slowing as annualized growth on a three-month basis for CPI core-trim and core-median tracked under 2% in both March and April. Third, labor market conditions have eased. job creation has been slower than the increase in the working-age population. The BOC will not release updated forecasts until the July 24 meeting.

Canada data highlight will also be the jobs report Friday. Consensus sees a 22.5k rise in jobs after a strong gain of 90.4k in April. The unemployment rate is projected to rise a tick to 6.2% on a higher participation rate of 65.5%. Hourly wages are expected to slow a tick to 4.7% y/y.

Canada also reports May PMIs. S&P global manufacturing will be reported Monday. S&P Global services and composite will be reported Wednesday. Ivey PMI will be reported Thursday.

EUROPE/MIDDLE EAST/AFRICA

European Central Bank meets Thursday and is widely expected to cut rates 25 bp. However, the tone of the post-meeting press conference and the updated macroeconomic projections will likely further dampen expectations that the ECB is about to embark on an aggressive easing cycle. Odds of a second hike in September have fallen to 50%. Eurozone services inflation remains sticky above 4% y/y and leading indicators point to a modest improvement in economic activity. Nagel, Holzmann, and Schnabel (twice) speak Friday. These are the leading hawks at the ECB and so their message will likely be quite predictably cautious.

Eurozone reports final May PMIs this week. Manufacturing will be reported Monday. Italy and Spain report for the first time and are expected at 47.9 and 52.5, respectively. Services and composite PMIs will be reported Wednesday. Here too, Italy and Spain report for the first time and their composite PMIs are expected at 52.8 and 55.4, respectively. Both would be down modestly from April.

Eurozone countries report key real sector data. France reports April IP Wednesday and is expected to remain steady at 0.7% y/y. Germany reports April factory orders Thursday. Spain reports April IP Thursday and is expected at 0.8% y/y vs. -1.2% in March. Italy and eurozone report April retail sales Thursday. Germany reports April IP and trade data Friday, with IP expected at -3.1% y/y vs. -3.3% in March.

Bank of England releases its May Decision Maker Panel survey Thursday. 1-year expectations are expected to drop a tick to 2.8%. if so, it would be the lowest on record since this series began in 2022 and would move closer to the 2% target.

Switzerland data highlight will be May CPI Tuesday. Headline is expected to remain steady at 1.4% y/y, while core is expected to pick up a tick to 1.3% y/y. At the last meeting March, the SNB started the easing cycle with a 25 bp cut to 1.5%. Next meeting is June 20, and the market is pricing in around 45% odds of another rate cut then. We believe the SNB has scope to ease further as inflation remains well within the bank’s stability range of 0 and 2%.

Switzerland also reports May PMIs Monday. Manufacturing is expected at 44.0 vs. 41.4 in April.

Sweden reports May PMIs this week. Manufacturing will be reported Monday. Services and composite PMIs will be reported Wednesday.

ASIA

Japan data highlight will be April cash earnings Wednesday. Nominal earnings are expected at 1.8% y/y vs. 1.0% in March, while real earnings are expected at -1.0% y/y vs. -2.1% in March. The modest pickup would be due to the raises agreed upon during the Shunto spring wage negotiations. Recent data continue to suggest a modest tightening cycle from the Bank of Japan. A more pronounced increase in pay growth would lift Bank of Japan interest expectations in favor of JPY. Household spending will be reported Friday and is expected at 0.6% y/y vs. -1.2% in March. Bank of Japan board member Nakamura speaks Thursday.

Australia data highlight will be Q1 GDP Wednesday. Growth is expected to remain steady at 0.2% q/q, while the y/y rate is expected at 1.2% vs. 1.5% in Q4.  Market participants will fine-tune their GDP estimates after the Q1 net exports and inventories data are released Tuesday. Household spending is expected to remain sluggish as retail sales volumes fell -0.4% q/q in Q1. In contrast, business investment should be an important growth tailwind considering private new capital expenditure (capex) rose 1.0% q/q in Q1.

New Zealand data highlight will be Q1 manufacturing activity Friday. Retail sales unexpectedly rose in Q1 and so it will be interesting if manufacturing output follows suit. If so, GDP could grow for the first time since Q2 2023.