GBP

Last week was quiet regarding UK data releases, but with the Bank of England scheduled to meet on Thursday, this week could see more movement in the pound.

Markets expect the Bank of England to follow the Federal Reserve and hold rates when they meet on Thursday, May 9th. A 6% chance of a cut is priced in.*

The outlook for interest rates has changed significantly since the beginning of the year. Currently, only two rate cuts are priced in for 2024, which would see interest rates fall by 0.5%. This forecast is a stark reduction from January, where the market initially expected six cuts in 2024, which would have meant a 1.5% drop across the year.

There is a possibility that the first official bank rate cut of 2024 could come as soon as the June monetary policy meeting, especially if inflation does approach the 2% mark. This would see the BoE take a similar path to the European Central Bank, which is expected to make its first cut two weeks earlier. However, most economists expect the BoE to wait until August or September before reaching a committee vote that favours a rate cut, slightly ahead of the Fed, which isn’t expected to make its first cut until November.

The Bank of England’s rate meeting will be closely followed by the latest UK GDP growth data, which will be released on Friday at 7am. It is forecast to remain at 0.1% month-on-month and show no growth (0.0%) year-on-year. Industrial and Manufacturing production figures for the UK will be released simultaneously, both of which are forecast to fall -0.5% month-on-month.

EUR

Last week, growth forecasts from the Eurozone’s four major economies beat their forecasts and contributed to the Eurozone posting growth of 0.3% between January and March. Annual CPI figures were also released for Germany and Spain and came in under forecasts at 2.2% and 3.3%, respectively, while the Eurozone CPI Flash estimate came in as expected at 2.4%.

With a French bank holiday on Wednesday and Thursday and a German bank holiday on Thursday, it’s a quieter week of Eurozone data releases.

The only data out of note set for release this week was HCOB German services and composite PMIs, which were published yesterday. The data came in largely close to expectations, with services and composite readings posting  53.2 against the expected figure of 53.3 and 50.6 against 50.5, respectively. 

The HCOB Eurozone services and composite PMIs came in above forecasts at 53.3 and 51.7, respectively. Other data releases this week include German Factory orders, which came out this morning at -0.4 % against forecasts of +0.4%, and finally, German Industrial production, which will be released tomorrow at 7am and is forecast to come in at -0.7 %.

USD

The dollar dropped off the back end of last week as employers added fewer jobs than expected in April. The latest nonfarm payrolls were released on Friday and were expected to show a net increase of 238K new jobs, but the actual figure came in at 175K.

This is only the fifth time in the past 28 months the figure has come in below expectation, and the underwhelming result could have led markets to believe that the demand for labour is easing, which could give the Fed scope to loosen its monetary policy and cut interest rates. 

Markets reacted quickly and are now close to pricing in two rate cuts for 2024 after expectations had been hovering between one and two cuts for the past few weeks.

The jobs data followed last Wednesday’s Fed monetary policy meeting, during which the central bank chose to hold rates. Market expectations are that the Fed will continue to keep rates steady until after the US election, which is on November 5th.

Later this week, we will also see the release of the latest US Unemployment Claims due at 1:30pm (BST) Thursday, which is forecast to come in at 211K, and Preliminary UoM Consumer sentiment Friday 3pm, expected at 76.3.