It is an eventful week with no less than four major central bank meeting, as well as top tier data including the US ISM, Eurozone inflation numbers and the monthly non-farm payrolls report to round it all off on Friday. That’s certainly a busy few days and no doubt increased volatility too, even if markets have baked in 25bp rate hikes for the Fed and ECB.

The dollar has closed lower in six out of the last seven weeks as markets bet on the Fed pausing after the FOMC meeting on Wednesday. Banking sector stress has reared its head again after First Republic Bank plunged to record lows as it revealed depositors had withdrawn over $100 billion across March. This may play into the Fed’s thinking as banking tumult has led to a tightening of credit conditions. Indeed, Chair Powell has said this will act as at least a 25bp rate hike and further slow economic activity.

The chances of a hard landing have increased and the FOMC’s baseline of recession will no doubt be quizzed at the press conference. Confirmation that the peak or at least a pause in rates is in, is what the markets want to hear as they have priced in cuts towards the end of the year. New cycle lows for the dollar will come quickly if Powell is more cautious.

The ECB will likely lift rates by a similar amount to the Fed but potentially confirm that they will continue hiking in order to get sticky core inflation down. Updated eurozone CPI numbers are released on Tuesday as well as the Bank Lending Survey. The latter will give investors a picture of how tight conditions have become in the region. EUR/USD is battling with the January high at 1.1032 but dip buying means the path of least resistance is for fresh new highs.

Expectations for the US employment report are for further moderation in jobs growth, as business optimism and confidence are at levels consistent with recession. With initial jobless claims creeping upwards, the Fed expects the unemployment rate to rise to 4.5% by year end. An upside surprise in the numbers would help the dollar, though probably not for long. European majors like GBP broke new ground last week while EUR/USD and USD/CHF are consolidating, waiting to break out.

Major risk events of the week

1 May 2023, Monday:

-US ISM Manufacturing: This gauge of business activity is forecast to have picked up to 46.6 from 46.3. Easing supply chain pressures should give some support, while recent PMI data revealed stronger demand. But the outlook is expected to remain challenging with price pressures still elevated.

2 May 2023, Tuesday:

-RBA Meeting: Consensus expects the RBA to stand pat and leave the cash rate at 3.6%. The first quarter CPI report delivered a meaningful downside surprise on underlying inflation, while disinflation in the goods components pushed the annual headline print down to 7%. Many economists now believe the current cash rate is now at the peak for this tightening cycle. Strong support in AUD/USD around 0.6563/67 was tested last week.

-Eurozone CPI: Expectations are for the headline to tick one-tenth lower to 6.8% in April. Focus will be on the super- core reading which is forecast to hold steady at 5.7%. There’s been recent mixed inflation data out of individual countries. However, Germany notably saw the headline cool to 7.2% from 7.4%.  EUR/USD need to break last week’s top at 1.1075 for more upside towards 1.12.

3 May 2023, Wednesday:

–FOMC Meeting: Money markets have nailed on a 25bp rate hike which would take the target range to 5% – 5.25%. Will Chair Powell leave the door open to more tightening and signal the Fed is still data dependent? Questions around the banking sector turmoil will be crucial.

4 May 2023, Thursday:

–ECB Meeting: A 25bp rate hike is seen as most likely by markets, with bets on a bigger 50bp move currently sitting around 30%. Banking sector stress has eased which probably means the focus will be on sticky core inflation with the latest data released on Tuesday. So, the battle between the hawks and doves will probably be won by the former as President Lagarde adopts a hawkish bias. Anything less will see the euro sell off with initial support around 1.0950.

5 May 2023, Friday:

–US Non-Farm Payrolls: The market median is for a headline print of 175k and unemployment to tick up one-tenth to 3.6%. Analysts say job redundancy announcements remain frequent with fewer job postings in recent months. The tightening of credit conditions might also impact the labour market going forward. Wage growth is seen staying benign at 0.3%.

–Canada Employment: Job gains are expected to remain resilient with the impact of higher rates yet to feed through into the labour market. The economy continued to add more jobs than expected in March with a seventh straight monthly gain. The jobless rate remained near a record low for a fourth month in a row.