The last week of April will be the week before the Fed decision, which will be taken on May 4 and is becoming the event of at least this half of the year - mainly due to the possible scale of the move on interest rates in the US.
However, before the Fed makes its decision, we will hear a number of macroeconomic data. By then, they may also affect the US dollar, whose index today seems to be at its highest levels since June 2020. Over the past week, the Japanese yen and the Swiss franc seemed to lose the most to the USD. These currencies may have weakened by 1.64 and 1.40 percent respectively. Only the euro may gain less than 0.1 percent to the USD this week.
Among the upcoming macroeconomic data from the US, the market seems to expect that Q1 GDP may grow at an annualized rate of 1-1.5 percent, which may represent a rather large slowdown from the 6.9 percent pace achieved in Q4 2021, Recent data, however, seems to point to a rebound in economic activity and stronger GDP growth may be expected in Q2. Durable goods orders could also surprise positively due to a set of regional manufacturing data readings, the ISM report and higher Boeing aircraft orders.
Thus, market expectations, which seem to be heavily focused on a 50 basis point interest rate hike already on May 4, may be justified. It is also worth mentioning that James Bullard, President of the St. Louis Fed, has mentioned the possibility of a 75 bps hike, but he is widely regarded as the most hawkish FOMC member and none of the other members have openly discussed such a scenario.
Meanwhile, in the Eurozone, inflation data may turn out to be of key importance. Inflation for March showed an increase of 7.4 percent, and current expectations and market consensus may point to 7.5 percent. As a result, the interest rate market seems to be estimating the possibility of a 50 basis point interest rate hike by the European Central Bank by September. This could mean that the ECB's -0.5 percent deposit rate could be added by the end of the year. This in turn could be one of the more important factors for the euro next week. However, before any more inflation data comes in, the results of the second round of the French presidential election will come to market earlier, which could also be important for the Euro exchange rate.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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