GPS Global Wallet – May 4th Edition

The euro resumes its rally for the third consecutive day as the European Central Bank prepares to hike the expected 25 basis points at its policy meeting this afternoon. The greenback lost steam after the Fed’s move of a quarter percentage point last night and after it signalled a potential pause for the June meeting. EUR/USD is approaching 1.11 and GBP/USD touches its highest level since June 2022 at 1.2593. USD/JPY falls and currently trades mid 134-135.

“We’re no longer saying that we anticipate” further rate hikes. These were Jerome Powell words last night, adding that the US will likely have a mild recession. The Fed has marked its terminal rate to be 5.25% with the 25-basis points rate hike at the May FOMC meeting, hinting this may have been the last move in interest rates for a while on what it was one of the most aggressive tightening campaigns. We expect to see employment data soften until June and the Fed holding rates and watch inflation gradually coming off.

All eyes are on the ECB today where they are poised to ease their tightening move to a quarter point. This comes as we have seen some stabilization in underlying inflation and signs that credit has been tightening across Europe making it a perfect time for policymakers to downshift from the half-percentage point and ultimately leading the ECB to lift its terminal rate to 3.25%. Some contributor investment banks still favour a 50 basis points hike by the ECB due to how far we are from the 2% target and the wage growth picking up.

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