Markets Reset as US Inflation & Fed Decision Take Centre Stage.
Global currency markets are starting the week recalibrating expectations after a dramatic conclusion to last week's trading. A widely anticipated rate cut from the European Central Bank was ultimately overshadowed by a surprisingly strong US jobs report, which sent the US Dollar surging and reversed earlier trends. This has firmly shifted the market's focus to the outlook for US monetary policy, with a pivotal inflation report and a Federal Reserve decision both scheduled for this Wednesday, promising another significant week for foreign exchange.
The Pound Sterling was pulled back from its recent highs during Friday's sharp US Dollar rally. After a week dominated by international events, the focus for Sterling now pivots to the domestic front. A comprehensive UK labour market report, including key wage growth figures, is due on Tuesday. The data will be closely watched by the Bank of England and could heavily influence expectations for its future policy path, making it a critical release for the Pound this week.
The US Dollar enters the week on a strong footing, its trajectory dramatically altered by last Friday's robust Non-Farm Payrolls data. The report significantly dampened speculation of imminent rate cuts from the Federal Reserve. The Dollar's direction this week will be almost entirely dictated by Wednesday's two main events: the Consumer Price Index (CPI) inflation data, followed just hours later by the Fed's policy decision, updated economic projections, and press conference.
The Euro saw its post-ECB gains completely erased by the US jobs data. While the European Central Bank did cut rates, its cautious message about the path ahead initially supported the single currency. However, the sheer strength of the US economic data reasserted the Dollar's dominance. With a lighter economic calendar in the Eurozone this week, the Euro will likely remain highly sensitive to the major US events and the resulting shifts in the Dollar.
Events to Watch This Week:
Tuesday, June 10: UK Labour Market Report (Jobs & Wages for April)
Wednesday, June 11: US CPI Inflation Report (May) US Federal Reserve (FOMC) Policy Decision & Press Conference
Thursday, June 12: US Producer Price Index (PPI) (May)
Friday, June 13: University of Michigan Consumer Sentiment (Preliminary for June)
This week is heavily back-loaded, with Wednesday poised to be the most critical day for market direction. The combination of the US inflation report and the Federal Reserve's updated interest rate projections has the potential to cement the market's tone for the weeks ahead.
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