- The U.S. Dollar Index witnesses 1% decline
- RBA expected to maintain rates for longer
- BOE likelihood of rate cuts rises
- Release of key inflation indicators in China: CPI and PPI
Last Week's Major Events
Last week, the U.S. Dollar witnessed a decline of approximately 1%. The move came as a result of multiple factors explained below.
On Wednesday, May 1, the Federal Reserve decided to maintain interest rates at 5.50%. This was followed by the FOMC Press Conference, during which Fed Chair Jerome Powell mentioned the central bank's cautious stance on interest rate cuts.
Powell emphasized the importance of gaining greater confidence that inflation is moving sustainably towards the 2% mark before considering any adjustments to monetary policy. Moreover, the pivotal role of key U.S. economic metrics in shaping the Fed’s future interest rate path was highlighted.
On Friday, markets saw the release of major U.S. labor data, including the Non-farm Employment Change (NFP) and the Unemployment Rate. The NFP figure fell short of expectations, with a result of 175K jobs added, marking the lowest figure since December 8, 2023, against a forecast of 238K. This drop signaled weakness in employment growth.
At the same time, the unemployment rate figure surpassed expectations hitting 3.9% compared to the projected 3.8%, indicating a higher-than-anticipated proportion of unemployed individuals.
The combined impact of these developments on market sentiment weighed heavily on the U.S. Dollar, contributing to its recent decline.
Upcoming Major Events
Reserve Bank of Australia Cash Rate
The Reserve Bank of Australia (RBA) is scheduled to release its Cash Rate on Tuesday, May 7, 2024, at 8:30 AM (Dubai Time). The market anticipates the rate to remain unchanged at 4.35%. If the reading aligns with forecasts, this will mark the fifth consecutive period of maintaining the rate at this level, representing its highest point. The RBA is expected to hold its key interest rate at this level to manage inflationary pressures, which are driven by a rise in employment conditions.
Bank of England Official Bank Rate
The Bank of England (BOE) is scheduled to release its Official Bank rate on Thursday, May 9, 2024, at 3:00 PM (Dubai Time). The market anticipates the rate to remain at 5.25%, a level maintained since November 2, 2023. Governor Andrew Bailey emphasized that price pressures are heading in a favorable direction. Notably, the Consumer Price Index (CPI) declined from 3.4% in March to 3.2% in April, with expectations of further declines. This raises expectations of rate cuts in the coming months, with September emerging as a probable starting point.
China Inflation
On Saturday, May 25, markets are expecting the release of major inflation figures in China, such as the Consumer Price Index (CPI) and the Producer Price Index (PPI) at 5:30 AM (Dubai Time). China’s CPI is projected to hold steady at 0.1%, indicating a concerning difference from the desired 2% target level. While PPI is expected to rise from -2.8% to -2.3%, signaling a positive trend. This increase suggests that producers are currently facing higher costs, potentially predicting future price hikes for consumers. Such a scenario could translate into a rise in the next CPI reading.
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