Today’s macroeconomic calendar includes one of the most significant macro publications. However, we are currently uncertain how important it really is, given that the market is largely “preoccupied” with the decisions of Donald Trump’s new administration. Anything is possible, from one extreme scenario to another. Exchange rates and stock indices are now heavily dependent on these political developments. If there are no major surprises in the NFP (Non-Farm Payrolls) data, volatility may remain limited.
It is difficult to assess whether the recent chaotic actions of the U.S. administration are part of a deliberate strategy or the result of incompetence and a lack of a well-thought-out plan. Perhaps we are witnessing a bit of both. In reality, we can expect anything—from widespread tariffs on U.S. imports, with little distinction between products with high and low price elasticity, to the absence of significant tariffs, relying instead on political maneuvers that may lead to concessions from U.S. trading partners.
In other key developments, we saw an interest rate cut in the UK. Yesterday’s decision by the Bank of England (BoE) brought some surprises. The biggest one was the vote split. The expected outcome was 8 to 1, but the actual result was 7 to 2, meaning that two central bank members supported a larger 50-basis-point rate cut. The market naturally focused on the fact that the most “hawkish” policymaker suddenly adopted a “dovish” stance. Additionally, growth forecasts were lowered, while inflation forecasts were raised, raising the risk of stagflation. In his speech, Andrew Bailey attempted to prevent an overinterpretation of the voting results. Nevertheless, the GBP weakened, despite the rate cut being fully priced in by the market.
The UK’s headline inflation rate is expected to rise to 3.7% year-over-year in 2025 before gradually returning to target levels. The BoE’s projections are based on the assumption that there will be two more rate cuts this year, each by 25 basis points. The market is wary of these new forecasts and is beginning to price in deeper changes to monetary policy parameters.
Łukasz Zembik, Oanda TMS Brokers
Source: Manager Plus
