The dollar was broadly firmer against the majors last week. A more hawkish than expected Fed hold and rising risk off impulses helped the greenback recover from earlier weakness. EUR, AUD, and NZD outperformed while SEK, NOK, and JPY underperformed. The dollar could extend its gains this week as risk off impulses pick up even further, but we believe the underlying bear trend will eventually reassert itself on weaker U.S. data that calls the Fed’s hawkish hold into question.
AMERICAS
Risk off impulses should pick up after the weekend U.S. attack on Iran nuclear facilities. Markets have to contend with uncertainty regarding the potential response by Iran or its proxies, such as Hezbollah. Such a response could be a military one or perhaps a cyberattack, or even a potential closure of the Strait of Hormuz. There is also uncertainty whether Iran’s nuclear capabilities were destroyed or merely damaged, in which case there is the risk of further attacks on Iran. While all of this uncertainty is likely to be extended, markets will most likely move out of risk off mode in the coming days.
Powell gives his semiannual testimony to Congress this week. He appears before the House Committee on Financial Services Tuesday and then before the Senate Banking Committee Wednesday. With global uncertainty still high, we expect him to take a similar tone to his post-decision press conference last week. Powell was surprisingly hawkish then, and the prospects of higher oil prices only adds to upside inflation risks. The key takeaway was the Fed is not inclined to cut rates until it can judge the degree of tariff pass-through, something that hasn’t been felt yet. The market is pricing in around 15% odds of a July cut, rising to 80% in September and fully priced in for October.
There are many other Fed speakers this week. Waller, Bowman, Goolsbee, Williams, and Kugler (twice) speak Monday. Hammack, Williams, Collins, Barr, and Schmid speak Tuesday. Barkin, Hammack, and Barr speak Thursday. Williams, Hammack, and Cook speak Friday. While most Fed officials are in Powell’s camp of wait and see, we know some are more dovish as the June Dots show two were in favor of three cuts this year. Governor Waller is likely to be one of the two, as he said he is in favor of cutting rates soon, perhaps as early as the July 29-30 meeting.
S&P Global preliminary June PMIs will be reported Monday. Manufacturing is expected at 51.0 vs. 52.0 in May, services is projected at 52.9 vs. 53.7 in May, and the composite index is expected at 52.1 vs. 53.0 in May. Of note, the ISM readings were weaker than S&P Global in May, with the ISM composite PMI falling to 49.8. June ISM PMIs will be reported next week.
May PCE data Friday will be important. Headline is expected to pick up two ticks to 2.3% y/y, while core is expected to pick up a tick to 2.6% y/y. The Cleveland Fed Nowcast model estimates headline and core PCE at 2.3% and 2.6%, respectively. Looking ahead to June, both are estimated to remain steady at 2.3% and 2.6%, respectively. The rising ISM prices paid readings point to a reacceleration in inflation pressures. Indeed, the FOMC raised the 2025 median estimate for both PCE and core PCE inflation by 0.3 ppt to 3.0% and 3.1%, respectively.
Personal income and spending will be reported at the same time. Income is expected at 0.3% m/m vs. 0.8% in April, while spending is expected at 0.1% m/m vs. 0.2% in April. Real persona spending is expected flat m/m vs. 0.1% in April. The weaker than expected retail sales data for May warn of downside risks to personal spending, which includes services. The Atlanta Fed GDPNow model currently tracks personal consumption spending growth of 1.9% SAAR in Q2.
Chicago Fed May National Activity Index will be reported Thursday. Headline is expected at -0.30 vs. -0.25 in April. If so, the 3-month moving average would fall to -0.17 vs. 0.05 in April. This would be the lowest since November and would move closer to the -0.7 threshold that typically signals recession.
The growth outlook is starting to deteriorate. The New York Fed Nowcast model now estimates Q2 growth at 1.9% SAAR vs. 2.3% the previous week and Q3 at 2.1% SAAR vs. 2.5% the previous week. These latest readings aren't bad but are clearly decelerating after weeks of strength. Next update is Friday. Elsewhere, the Atlanta Fed GDPNow model now estimates Q2 growth at 3.4% SAAR vs. 3.5% previously and will also be updated Friday.
Consumer confidence will be closely watched. Conference Board reports June consumer confidence Tuesday. Headline is expected at 99.8 vs. 98.0 in May. If so, it would be the second straight month of improvement to the highest since February. However, the sentiment data no longer appears to be a reliable indicator of future spending behavior. Keep an eye on the labor index (jobs plentiful minus jobs hard to get). In May, this fell to an 8-month low of 13.2 vs. 13.7 in April, indicative of weakening labor market conditions. University of Michigan reports final June consumer sentiment Friday. Headline is expected to fall two ticks from the preliminary to 60.3.
Weekly jobless claims Thursday should confirm that the labor market is starting to crack. Continuing claims are for the BLS survey week containing the 12th of the month and are expected to remain steady at 1.945 mln. Elsewhere, initial claims are expected to remain steady at 245k. If so, the 4-week moving average would rise to 247k, the highest since June 2023. Bloomberg consensus for June NFP is 110k vs. 139k in May, while its whisper number stands at 112k. We see risks of a sub-100k reading.
Canada highlight will be May CPI data Tuesday. Headline is expected to remain steady at 1.7% y/y, while core median is expected to fall two ticks to 3.0% y/y and core trim is expected to fall a tick to 3.0% y/y. The Bank of Canada is concerned that “underlying inflation could be firmer than we thought.” As such, the May CPI print will be a key driver of BOC rate expectations. The swaps market is pricing in 35% odds of a 25 bp cut at the next meeting July 30. Looking ahead, the swaps market is pricing in 25 bp of total easing over the next 12 months that would see the policy rate bottom at 2.50%.
Canada also reports April GDP data Friday. Statistics Canada advance information indicates that real GDP increased 0.1% m/m, while Bloomberg consensus sees flat m/m vs. 0.1% in March. Increases in mining, quarrying, and oil and gas extraction and finance and insurance are projected to partially offset decreases in manufacturing.
The Canada-EU Summit will be held Monday in Brussels. Prime Minister Carney will meet with EU leaders to deepen the Canada-EU relationship across all sectors, including diversifying trade and commerce, defending rules-based trade, and bolstering security and defense partnerships. A core goal of the Canadian government is to diversify trade partnerships beyond the US. As background, the EU is Canada's second-largest trading partner after the US and ahead of China, accounting for 8% of its total goods exports. Canada is the EU's 12th largest goods trading partner and accounts for almost 1.4% of the EU's total external trade in goods.
EUROPE/MIDDLE EAST/AFRICA
Eurozone data highlight will be preliminary June PMIs Monday. Headline manufacturing is expected at 49.8 vs. 49.4 in May, services is expected at 50.0 vs. 49.7 in May, and the composite index is expected at 50.5 vs. 50.2 in May. If so, the composite PMI would be the highest since March. Looking at the country breakdown, the German composite is expected at 49.1 vs. 48.5 in May and the French composites is expected to remain steady at 49.3 in May. Italy and Spain will be reported with the final PMI readings in early July.
June eurozone country-level CPI data will start to roll out. France and Spain report Friday. France’s EU Harmonised inflation is expected to pick up a tick to 0.7% y/y, while Spain’s is expected to pick up two ticks to 2.2% y/y. Spain is one of the only eurozone countries to report core inflation and it is expected to remain steady at 2.2% y/y. Germany and Italy report next Monday. Eurozone-wide CPI will be reported next Tuesday.
The ECB is nearing the end of its easing cycle. The swaps market is pricing in one more 25 bp cut over the next 12 months. There will be plenty of ECB speakers this week. Lagarde and Nagel speak Monday. Guindos, Kazimir, Lagarde, and Lane (twice) speak Tuesday. Guindos, Schnabel, and Lagarde speak Thursday. Villeroy and Rehn (twice) speak Friday. Schnabel speaks Saturday.
German sentiment surveys will be closely watched. June IFO survey will be reported Tuesday. Headline is expected at 88.2 vs. 87.5 in May, as trade hostility appears to have peaked. Both current assessment and expectations are seen rising to 86.5 and 90.0, respectively. July GfK consumer confidence will be reported Thursday and is expected at -19.2 vs. -19.9 in June..
BOE officials will try to stay on message this week after last week’s pause. Bailey (twice), Greene, Ramsden, Pill, and Breeden speak Tuesday. Lombardelli speaks Wednesday. Breeden and Bailey speak Thursday. Updated macro forecasts will come at the August 7 meeting, when there are currently around 70% odds of a cut. Looking ahead, the swaps market sees 75 bp of total easing over the next 12 months.
U.K. data highlight will be preliminary June PMIs Monday. Manufacturing is expected at 46.9 vs. 46.4 in May, services is expected at 51.3 vs. 50.9 in May, and the composite index is expected at 50.5 vs. 50.3 in May. If so, the composite would rise for the second straight month to the highest since March.
Riksbank minutes will be released Wednesday. At that meeting, the Riksbank cut rates 25 bp to 2.0%, as expected. It was a dovish cut, as the bank said that “The forecast for the policy rate entails some probability of another cut this year. New information shows that growth in the Swedish economy is weak, at the same time as unemployment remains high.” It stressed that “the economic recovery that began last year has lost momentum, and inflation is expected to be somewhat lower than in the previous forecast.” In its updated rate path forecasts, the Riksbank sees the policy rate at 1.92% by Q4 2025 before bottoming at 1.88% by Q1 2026. This lines up for the most part with the swaps market, which is pricing in 25 bp of total easing over the next 12 months that would see the policy rate bottom near 1.75%.
ASIA
Bank of Japan releases the summary of opinions for last week’s meeting Wednesday. Recall that the bank kept rates steady but announced plans to slow the pace of its tapering. The swaps market still sees only 25 bp of tightening over the next 12 months and so the cautious normalization cycle is an ongoing headwind for JPY. Board member Tamura also speaks Wednesday.
Japan highlight will be June Tokyo CPI data Friday. Headline is expected at 3.3% y/y vs. 3.4% in May, core (ex-fresh food) is expected at 3.3% y/y vs. 3.6% in May, while core ex- energy is expected to remain steady at 3.3% y/y. The BOJ is placing greater emphasis on CPI ex-food and energy. At the national level, this measure stands at 1.6% y/y and remains below the 2% target, but is creeping above 2% in Tokyo.
Japan preliminary June PMIs Monday also be important. The composite PMI fell to 50.2 in May and was the lowest since March.
Australia highlight will be May CPI data Wednesday. Headline is expected at 2.3% y/y vs. 2.4% in April. Of note, the trimmed mean picked up a tick to 2.8% y/y in April. At its last May 20 meeting, the RBA cut the cash rate target 25 bp to 3.85% and stressed that “Inflation is in the target band [2-3%] and upside risks appear to have diminished.” Indeed, the RBA projects the policy relevant trimmed mean inflation at 2.6% (down from 2.7% previously) across the forecast horizon. The market sees 85% odds of a rate cut at the next meeting July 8.
Australia preliminary June PMIs Monday also be important. The composite PMI fell to 50.5 in May and was the lowest since December.
