Done
The dollar fluctuates at one-month highs on the eve of the conclusion of the FED meeting, taking advantage of the uncertainty of the political framework that has emerged in Europe with the shift of voters to the right.
FED
The FOMC is not expected to make any changes. After strong employment numbers released last Friday, traders reduced their bets on a September Fed rate cut to below 50%, also scaling back expectations for the number of easing moves expected this year: to at the moment they only price one, according to Lseg calculations.
The latest consumer survey from the New York Fed sees a slight decline in inflation expectations for next year.
According to the May issue of the New York Fed’s Survey of Consumer Forecasts, the median inflation forecast for next year fell to +3.2% from +3.3% in April.
In contrast, three-year inflation forecasts remained at +2.8%, while five-year inflation estimates increased to +3.0% from the previous +2.8%.
The statement indicated that uncertainty about median inflation had increased over the one- and three-year horizons. Additionally, the report found that the predicted probability of losing your job in the next year fell to 12.4% from 15.1% in April, while expectations of voluntarily leaving your job increased slightly.
Respondents reported a 52.2% chance of getting a new job after losing one, up 1.3% from April.
Median projected household income growth increased marginally, but household spending growth forecasts for the following year decreased by 0.2% (to 5.0%). Overall, more respondents expect to be better off in a year than in the April survey.
ECB
Aggressive comments from the ECB after last week’s rate cut. ECB officials responded with aggressive comments after the Governing Council cut rates by 25 basis points for the first time since September 2019 last week. The market expects the next cut to be in September, but some analysts believe it will happen in December.
Main insights from the recent interview with the president Christine Lagarde:
1) the decline in rates will probably not be linear. It is possible that the pause in rate reduction after the decision of the June 6 meeting will be longer than one meeting and remains dependent on the trend of macro data such as inflation, wages and productivity with a focus on the trend of service inflation which remains the weak point at this stage;
2) the lack of forward guidance on rates does not mean that there are significant divergences within the Governing Council;
3) the end of PEPP investments has been largely anticipated and should not lead to excessive tensions on spreads and dislocation between different countries, while an instrument such as the TPI remains usable;
4) Lagarde remains positive on the economic prospects of the euro area;
5) Digital Euro: It is not a given that it will be available by the end of its mandate in 2027.
Lagarde’s statements make a scenario of two further rate cuts in 2024 less likely.
The outcome of the European elections led to a significant widening of spreads, considering the political uncertainty in countries such as France and Germany as negative.
Effect
Technical Analysis. The euro-dollar has been moving sideways for about a year, within the wide 1.05/1.1279 range. In recent weeks he has gotten closer…
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