Stronger than anticipated inflation has buoyed expectations that The Federal Reserve will hold off from any imminent rate cuts and prolong their higher-for-longer mantra. As a result, we have seen The Dollar hit a 5 month high, threatening to dip towards 1.25 last night. March’s inflation came out at 3.5%, proving again that inflation was becoming a sticky point for The Federal Reserve. This reading, coupled with minutes from March’s policy meeting saw traders and analysts largely price out any possibility for a June rate cut.
Sticking with Central Banks, up next is The European Central Bank this afternoon. It’s expected that rates will stay on hold at the record high of 4% for what will be the fifth consecutive meeting whilst they begin to prepare for an initial rate cut in June. The notion currently seems to reflect inflation being on track, however the central bank have stated they will be more confident to cut rate by Mid-Year. And with neighbouring Switzerland having already implemented a rate cut, all the talk seems to be around how quickly after June will they cut again. The change of tone from The Federal Reserve could potentially play a part in the decision making of The ECB, and so as ever today’s press conference at 13:45 will be crucial to the markets.
We then round the week off tomorrow with a basket of inflation readings across Europe, most notably German Inflation which is due to drop from 2.5% to 2.2%. Germany contribute 40% towards the EU’s economic performance and therefore all eyes will be fixed on this release as it may well play a part in The ECB’s thinking moving forward. The UK also have their GDP figures out, for both the last quarter and the yearly figures. Sterling could do with some support so any economic growth will no doubt provide some much needed relief.