The United States dollar extended its recent gains at the start of the new week, with the dollar index (DXY) hovering near a five-week high.
The strength in the greenback comes on the back of rising optimism around global trade negotiations and a string of upcoming economic data expected to guide interest rate expectations.
The dollar posted a third consecutive weekly gain, rising against the euro, yen, and Swiss franc, supported by signs of easing trade tensions.
Over the weekend, senior U.S. and Chinese officials met in Geneva, aiming to de-escalate a tariff war that has seen duties surpass 100%.
The recent U.S.-U.K. trade deal - which retained a 10% base tariff but reduced car import duties - has further lifted hopes of a broader softening in trade policies worldwide.
Attention now turns to Tuesday’s release of U.S. consumer price index (CPI) data. While the headline inflation figure is expected to remain steady at 2.4% year-on-year, any surprise could shift expectations of the Federal Reserve’s rate path.
Later in the week, investors will watch the University of Michigan’s consumer sentiment index for clues about household spending appetite amid ongoing trade developments and higher inflation expectations.
Euro steady amid light economic calendar
The Euro started the week at five-week lows amid a buoyant U.S. dollar, with the eurozone’s economic schedule set to remain relatively modest, though several indicators could influence sentiment.
Germany’s ZEW survey on Tuesday is expected to rise to 9.8, signalling a potential uptick in investor confidence.
This will be followed by final German consumer price index (CPI) data, comments from Bundesbank President Joachim Nagel, and a 30-year bond auction on Wednesday.
Thursday brings employment and gross domestic product (GDP) figures for the euro area, alongside a forecasted 1.7% increase in industrial production.
Italy’s trade data will round out the week on Friday, providing insights into regional export performance.
Aussie Faces Pressure: RBA Rate Cut Expected
The Australian Dollar continues to face downward pressure amid ongoing global trade speculation, with modest support from a slight recovery in Chinese copper production failing to offset the broader U.S.-China negotiations.
Money markets are pricing in a rate cut from the Reserve Bank of Australia later this month, with Wednesday’s Q1 wage data and Thursday’s employment figures unlikely to shift that view.
The RBA is widely expected to reduce its cash rate by 25 basis points (bp), citing easing inflation and global headwinds - though some economists see the potential for a 50bp cut as the start of a more dovish cycle.
According to the RBA Rate Tracker, markets are pricing in a 54% probability of the Reserve Bank of Australia cutting interest rates to 3.60% at its next policy meeting.
UK: BOE Speeches and Data in Focus
Sterling traders will be watching for a slew of speeches by Bank of England officials, including all nine members of the monetary policy committee, as they speak at the Bank Watchers Conference on Monday.
Recent BOE minutes reveal a split outlook, with two members favouring a larger 50 basis point cut at the May meeting, and two preferring no change.
The U.K. will also release GDP and industrial production data on Thursday, and jobs and wage figures on Tuesday, all of which could influence the rate trajectory. Additionally, the U.K. Treasury will auction long-dated gilts on Tuesday and Wednesday.
Japan: Yen Slips on Trade Optimism and BoJ Dovishness
USD/JPY ended at four-week highs, supported by rising risk appetite and fading expectations of a near-term Bank of Japan rate hike.
The recently announced U.S.-U.K. trade deal has stirred speculation of a potential U.S.-Japan agreement, further weighing on the yen.
Key data this week include Monday’s Eco Watchers Survey, Tuesday’s BoJ Summary of Opinions, and Wednesday’s producer price index. All will offer insight into the BoJ’s stance as inflation risks shift.
The week wraps up with Japan’s Q1 GDP on Friday, forecast to contract by 0.1% - a development that could weaken the yen further if it dims prospects for future rate hikes.
Economic Calendar Highlights:
The week begins on Monday with speeches from Bank of England officials Lombardelli, Greene, and Mann, offering potential insights into the central bank’s policy outlook.
On Tuesday, Australia will release its Westpac-Melbourne Institute Consumer Confidence Index, alongside NAB’s monthly business confidence survey.
The UK is set to publish its latest unemployment figures, where the jobless rate is expected to edge up from 4.4% to 4.5%.
Meanwhile, U.S. inflation data will take centre stage, with markets closely watching CPI figures for any signs of accelerating price pressures.
Wednesday’s agenda includes unemployment data from South Korea and Japan’s Producer Price Index. Australia will report quarterly wage growth, home loans, and investment lending.
Market participants will also hear from the BoE's Breeden and U.S. Federal Reserve officials Waller and Jefferson, which may offer further policy clues.
On Thursday, attention will shift to U.K. GDP data, with quarterly growth forecast to ease to 0.1% on a monthly basis. Australia's monthly unemployment rate will also be closely monitored.
The U.S. will release its latest producer price index (PPI) and retail sales data, where growth is expected to slow to 0.1% from the previous month’s 1.5% surge.
Friday rounds out the week with Japan’s Q1 GDP report, which is anticipated to show a slight contraction on a quarterly basis.
In the U.S., building permits, housing starts, and the University of Michigan’s consumer sentiment survey will provide a final pulse check on the health of the American economy.
