Labour's Historic Losses, a Payrolls Beat and a New Fed Chair in the Making.
Summary
April nonfarm payrolls came in well above the consensus forecast on Friday, though softer wage growth and a falling participation rate tempered the dollar's initial reaction
Labour suffered its worst local election result in a generation on Thursday, losing more than 1,100 seats while Reform UK gained more than 1,400; the result adds political uncertainty to the UK's economic outlook ahead of Thursday's GDP release
Kevin Warsh's confirmation vote before the full Senate is expected this week, with Powell's term as Chair expiring on Friday; markets are watching closely for any early signals on the incoming Chair's policy direction
US CPI for April is released on Tuesday; UK Q1 GDP follows on Thursday
Friday's payrolls report was stronger than markets had braced for, but the detail softened the dollar's response. Healthcare accounted for the largest share of gains, continuing a pattern that has dominated the labour market for the better part of a year. The headline was accompanied by a participation rate at its lowest level since October 2021 and wage growth that came in below forecast. With no rate cuts priced for the rest of 2026, Tuesday's CPI print now takes centre stage. A reading above expectations would reinforce the case for rates staying higher for longer and likely provide fresh support for the dollar.
Labour's local election losses were historic in scale. The party lost more than 1,100 council seats across England, finishing behind Reform UK, which won between 26% and 27% of the national vote according to the BBC and Sky News. Former deputy leader Angela Rayner said publicly that what the party was doing was not working. Starmer acknowledged the result without qualification. While local elections do not typically produce lasting moves in sterling, the political uncertainty they generate matters at a moment when the government's economic credibility is already under scrutiny. Thursday's Q1 GDP release will be the week's most important domestic test for the pound, and the reading will set the tone for sterling heading into the second half of May.
The confirmation of Kevin Warsh as Fed Chair is the week's most significant event for dollar sentiment. Warsh cleared the Senate Banking Committee on 29 April in a fully partisan vote, the first of its kind in the panel's history. The full Senate is expected to vote this week ahead of Powell's term expiring on Friday. Warsh told the committee he would remain strictly independent, but markets will begin forming a view on his policy instincts from the moment he takes office. Any signals suggesting a more dovish lean than Powell would weigh on the dollar; a continuation of the current cautious stance would likely leave it supported.
Events to Watch This Week
Tuesday 13 May: US CPI (April)
Thursday 15 May: UK Q1 2026 GDP and March monthly GDP; US retail sales (April); Jerome Powell's term as Fed Chair expires
Week of 11 May: Full Senate confirmation vote for Kevin Warsh as Fed Chair
Tuesday's CPI print and Thursday's UK GDP release are the week's most consequential data points for currency markets. Speak to the Orbis dealing team ahead of both releases to ensure your upcoming transfers are protected.
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