Global overview
The U.S. dollar kicked off May on steady ground with many markets closed for public holidays. Risk sentiment was cautious after JPMorgan Chase acquired most of the assets from embattled lender First Republic as banking sector instability continued to simmer. The dollar edged up from 2023 lows against the euro and sterling and eased off one-month peaks against the Canadian dollar. The tentative calm isn’t expected to last with the first week of May featuring central bank decisions in the U.S. and Europe, along with big ticket data. The brightest spotlight is on the Federal Reserve’s Wednesday policy decision at which America’s central bank is expected to raise interest rates for a 10th straight meeting with markets anticipating at 25 basis point hike to a range of 5% to 5.25%. Markets are more preoccupied with the Fed’s plans for policy after this month. A Fed that remains resolute about taming still too high inflation would tend to set a high bar for rate cuts this year, a scenario that could support the greenback. Across the pond, a seventh straight rate hike is forecast from the European Central Bank Thursday with rates expected to rise to at least 3.25% from 3%, already the highest level since 2008. If that’s not enough, the U.S. and Canada issue jobs figures Friday while the euro zone will publish inflation and unemployment on Tuesday and Wednesday.
Will inflation be the euro’s ticket higher?
The euro steadied near one-year highs against the U.S. dollar at the start of a critical week for global markets. No shortage of drivers this week will help shape near-term sentiment for the euro. While much of the attention will center around the Fed Wednesday and the ECB Thursday, an event that could be equally important is a report on euro area inflation Tuesday. Inflation is forecast to tick up to a 7% annual rate in April from March’s already too high 6.9%. Higher inflation, if realized, could be the euro’s ticket higher as it would underscore the more hawkish outlook for ECB policy over the balance of the year compared to the Fed.
Stronger UK pound takes a holiday
Sterling eased below 10-month highs against the greenback in holiday-light trade with area markets enjoying a long weekend. The pound notched a string of June 2022 peaks in April which followed another hot reading of UK inflation which spent a seventh straight month above 10%. Stubbornly high inflation is seen keeping the Bank of England on a higher rate path for longer. Already at 14-year highs of 4.25%, British interest rates are expected to rise by at least another 25 basis points on May 11.
Canada’s job market in focus
Canada’s dollar held above one-month lows against the greenback as a big week got underway. The Fed’s midweek meeting serves as the focal point with U.S. interest rates expected to increase by a quarter percentage point to a range of 5% to 5.25%. U.S. and Canadian jobs figures are also in focus with tight labor market conditions expected to persist. Forecasts suggest Canada added around 20,000 jobs in April compared to 34,700 in March. Unemployment is expected to tick up to a still low 5.1%. Canada’s tight labor market has helped set a high bar for Bank of Canada rate cuts this year, a scenario that’s helped to undercut bouts of loonie weakness.
Dollar stabilizes at outset of new month
Table: rolling 7-day currency trends and trading ranges
Key global risk events
Calendar: May 1-5
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
