The highlight of the week will be the US CPI data released on Wednesday. Although the FOMC targets the PCE figures rather than this release, these numbers are still important to monitor as one of the timelier gauges of price pressures at present. The April print is expected to mark the first print in a long time which on a year-on-year basis will be decelerating compared to the prior month.
Many economists hope that inflation may now be past its peak. But the fall back to target is set to be slow and protracted. Geopolitical tensions and China’s zero-Covid strategy remain and will continue to add pressure to supply chains. The tight labour market, as confirmed by Friday’s latest non-farm payrolls data, may also put upward pressure on wages. These labour costs are being passed onto customers so making for sticky inflation.
The dollar should remain well supported, although the pause in bullish momentum at long-term resistance is notable. In fact, with markets already pricing in the Fed funds target rate near the upper end of the neutral range of 3%, periods of major gains for the greenback may be harder going forward. That said, further sharp falls in equity markets will boost the buck's haven status.
A battered pound suffered a third week of sharp declines, losing over 6%. The UK GDP data is forecast to bounce in the first quarter. But this will mask softer performance in March, increasing concerns about slowing growth. Market pricing for rate hikes by the Bank of England still remain elevated, with around 75bps baked in for this year.
It's a thinner calendar this week; here are the key risk events:
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