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How long can the Fed wait to cut rates?

  • Tuesday - Eurozone inflation has the potential to influence a shift in the European Central Bank’s (ECB) monetary policy position.
  • Wednesday - Are Eurozone Retail Sales falling at a rate that suggests policy intervention is needed?
  • Friday - Have US wages started to reflect the close on full employment that’s now seen?


The Institute for Supply Management (ISM) will release May’s US Manufacturing Purchasing Managers’ Index (PMI) data today. Following the dip lower in April to 52.8—the lowest reading seen in close to three years—a rebound is expected. Prints as high as 53.7 are being forecast which has the potential to silence dovish Fed voices.


UK Construction PMI for May will be released. Expectations are for the print to continue its recovery from contraction following the sub-50.0 readings seen in February and March. Any disappointment here with a number coming in much below April’s 50.5 has the potential to heap yet more pressure on an already beleaguered Pound.

Eurozone Consumer Price Index (CPI) inflation data for May will be released, and this has the potential to help shape thinking at the European Central Bank’s monetary policy meeting later in the week. A modest decline to around 1.5% from April’s 1.7% is expected, but anything much below this will likely increase calls for ECB stimulus.

US Factory Order data for April will be published. Boeing’s sluggish order book following the fatal 737 MAX crashes is likely to weigh on the figure again. The overall reading is expected to slide from 1.9% in March to -0.7%, although stripping out transport, the move is forecast to be a more modest decline from 0.8% to 0.3%. However, markets are already braced for disappointment here, so there shouldn’t be any real adverse reaction from the Greenback.


UK Services PMI data is up for release, covering the country’s most dominant sector. Again, a modest improvement is expected here with May’s reading seen as being around 50.7, fractionally up on April’s 50.4 and comfortably above the break-even 50.0 mark. The key point to watch here would be any contraction as that would again have the potential to further unsettle an already weakened Pound.

Eurozone Retail Sales for April will be published and the expected contraction may push the annualised figure down to 1.5% from 1.9% a year ago, raising fresh concerns over the health of the Eurozone economy. If consumers are reining in spending, then tighter monetary policy will do little to help nurture any nascent recovery.

The US ADP Payroll reading for May will be published, acting as the typical curtain raiser ahead of Friday’s Non-Farm Payrolls. Expectations are for a reading of around 190,000, down from April’s 275,000. This figure has been jumping around somewhat of late, although with close on full employment, the US Dollar is likely to be unfazed by a shortfall here. Friday’s Average Hourly Earnings data will potentially be of greater interest.


The European Central Bank’s latest monetary policy meeting concludes today, with Tuesday’s inflation print likely to provide some meaningful direction when it comes to determining the next steps. Ahead of this release, there’s no expectation of any change to headline borrowing rates, but the accompanying narrative will be closely followed. Critically, any suggestion that the ECB is discounting the recent bout of economic weakness as transitory will risk weighing on the common currency.

US Trade Balance data for April will be published and once again risks will show that the tariff-driven trade agenda is failing to close the deficit. Boeing will make a meaningful impression on this number, with a print in excess of -$50 billion expected. Anything much larger than this may be enough to result in some short-term downside pressure for the Dollar.


US Non-Farm Payrolls may be grabbing the headlines today, but it’s the accompanying Average Hourly Earnings data that stands to carry the greatest clout. Despite almost full employment, wage growth in the US has been stubbornly slow. This has been instrumental in allowing the Federal Reserve to pivot away from its tightening cycle without risking inflationary pressures. Month-on-month wages are expected to grow 0.3%, up from 0.2% in April. If wages continue to grow at a sluggish pace, the hit to inflation will call into question just how long the Fed can wait until they look to start cutting interest rates.