- Currency markets continue to be driven by the outlook for the US economy along with the timing and size of future rate cuts from the Fed. The central bank continues to follow the data, with inflation and the labor markets the key drivers that will determine when rate setters on the FOMC will pull the trigger on the first cut of the cycle. We had two Fed speakers on the wires yesterday, both saying the central bank should keep borrowing costs high and wait for further evidence that inflation is easing, suggesting that they are not in a rush to cut rates. Cleveland Fed President Loretta Mester said, “Incoming economic information indicates that it will take longer to gain that confidence” adding, “Holding our restrictive stance for longer is prudent at this point as we gain clarity about the path of inflation.” Her comments were back up by John Williams the New York Fed President who said, “I don’t expect to see that greater confidence that we need to see on the inflation progress towards a 2% goal in the very near term.” Fed officials, including Chairman Powell have been very measures in their recent Fed speak, continuing to be patient and banging the same drum suggesting that they will not act until inflation is on the right path to their 2% goal. Markets, as always, are less patient and following a small tick lower in this week’s CPI report, Fed futures markets now price two 25bp cuts from the Fed this year.
- We have eurozone final April CPI on the docket this morning, with markets looking for an unchanged 2.4% print to keep the chances of a June ECB cut alive. EURUSD remains elevated in the high 1.08’s with resistance at 1.09 currently holding.
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