Major risk events are coming thick and fast in May with US inflation set to spark more volatility and inform investors about the likely direction of the FOMC and monetary policy. Markets think last week’s 25bp rate hike could be the last in the most aggressive tightening cycle seen in living memory. With rate cuts priced in after the summer, this goes against what Fed officals have generally been saying. This is currently putting pressure on the dollar, even with knockout job gains as seen in Friday’s non-farm payrolls report.

Long and varied lags involved in the 500bps of Fed rate rises are yet to be fully felt, while rapidly tightening lending and credit conditions and standards will crimp economic activity in the months ahead. We get a look at this impact in the Fed’s Senior Loan Officer Opinion Survey (SLOOS) released on Tuesday. This will be a gauge about lending conditions and will not likely make for very comfortable reading. The latest US inflation data is released midweek which is expected to show price pressures still running well above the Fed’s 2% target. But the annual reading is set to slow possibly below 5%, having peaked at 9.1% in the middle of last year.

The Bank of England gets handed the central bank policy decision baton on Thursday with money markets pricing in a 25bps rate hike. With UK inflation stuck in double digits and wage growth strong, the MPC have little choice but to carry on hiking. That said, price pressures are forecast to drop sharply with punchy food and core goods inflation not viewed as long lasting. Governor Bailey will probably impress that the bank remains data dependent, though if the accompanying bank projections predict upside risks to prices, then a further hike is possible in June and GBP/USD can continue on its upward path beyond 1.26.

Major risk events of the week

8 May 2023, Monday:

-FOMC’s SLOOS: The Fed’s Senior Loan Officer Opinion Survey (SLOOS) for April will be in the spotlight as it is expected to offer an insight into how much credit conditions in the US have tightened since the banking turmoil kicked off. Chair Powell warned in his recent FOMC press conference that the survey will show a tightening in lending standards.

10 May 2023, Wednesday:

-US CPI: Consensus expects the headline to remain at 5% in April and the monthly print to tick up three-tenths to 0.4%. The core is seen moving down to 0.3% m/m and 5.4% y/y. CPI is still well above the Fed’s 2% target even though the trend is down.

11 May 2023, Thursday:

–China CPI: The market median forecasts April inflation falling to 0.3% from 0.7%. ING says China should continue to show modest CPI inflation and weaker manufacturing activities should carry on putting deflationary pressures on the producer price index.

–Bank of England Meeting: Market consensus thinks a 25bp hike to 4.50% is the most likely outcome but there is greater uncertainty over the path ahead. Inflation remains stubbornly high and economic momentum has been stronger than many predicted. But this must be balanced with expected falls in inflation and the lagged impact of 415bps of tightening.  GBP finished last week really strongly by closing on its highs. The 100-week SMA sits above at 1.2723.

12 May 2023, Friday:

–UK GDP: March growth is forecast to fall 0.1% which analysts say would equate to q/q growth of 0.1%. Strikes have had a big impact again, though the services sector has remained resilient.  Crucial to avoiding recession over the winter has been government intervention in energy costs.