Wage Growth in Focus Following Dovish BoE
UK employment and wage data will be widely watched this week on Tuesday at 6:00 am GMT. Last week, the Bank of England (BoE) claimed a large part of the spotlight; albeit leaving the Bank Rate unchanged at 5.25% (16-year peak), a dovish shift was delivered in the shape of MPC votes. In a 7-2 vote to hold the Bank Rate unchanged, Deputy Governor David Ramsden joined external MPC member Swati Dhingra and voted for a rate cut. The shift did not come as much of a surprise, given his latest comments expressing confidence in the disinflation process: inflation risks remain ‘skewed to the downside’. Interestingly, history tells us that following a change in voting by Ramsden, the majority of the MPC members tend to follow suit; most recently, in late 2022, when he voted for increased hikes, the majority followed.
Adding to the dovish tilt was the downgrade in inflation forecasts. The central bank still projects inflation to reach the 2.0% inflation target in Q2 of this year (unchanged from the previous forecast) and then subsequently increase to approximately 2.6% in the second half of the year (down from 2.7% in the previous forecast). By Q2 2026, inflation is anticipated to be 1.9% (down from 2.2%) and then by 2027, slowing to 1.6%.
Ahead of June’s policy meeting, we have two inflation prints (22 May and 19 June) to consider and two wage/employment releases (this week and another report on 11 June).
For the three months to March, earnings (regular pay) are expected to slow to +5.9%, down from +6.0%, while wages (including bonuses), over the same period, are also expected to slow to +5.5%, down from +5.6%. A sizeable deviation to the downside here will likely open the door to trading opportunities for GBP shorts, even more so should the unemployment rate increase from 4.2% (although there are still concerns regarding survey issues with this release). Many desks still believe a June rate cut is on the table, but this will largely depend on incoming data leading up to the event. As of writing, the OIS curve is pricing in 61bps of easing for the entire year, with June’s probability of a cut at approximately 60%.
YoY US CPI Expected to Slow
The US CPI inflation report will also be a key print this week, scheduled for Wednesday at 12:30 pm GMT. Economists’ estimates indicate year-on-year headline inflation slowed to +3.4% in April at the headline level, down from +3.5% in March, with month-on-month data expected to rise +0.4%, matching March. The estimate range for both events is reasonably narrow: between +3.5% and +3.2% for the year-on-year print and between +0.4% and +0.3% month on month. For core inflation (excluding energy and food), year-on-year data is also expected to rise +3.6%, slightly slower than March’s +3.8% report, with the month-on-month core measure anticipated to rise +0.3%, down from March’s reading of +0.4%.
With the last four headline year-on-year prints delivering a beat, traders will look for a return of disinflation this week. A lower-than-expected number, data that matches or exceeds the 3.2% lower estimate, will likely see a dovish repricing and send the US dollar (USD) southbound. This would also likely lift equities and bonds (weighing on yields). For a higher-than-expected release, we can expect the opposite. Overall, however, traders will watch all four key metrics (headline and core for YoY and MoM) for a broad miss or beat.
You will recall that the Fed left its benchmark rate unchanged at 5.25%-5.50% for a sixth consecutive meeting in its last update and proved more dovish. The accompanying rate statement delivered a handful of sentence changes; the most prominent was the addition of the lack of progress on inflation, stating, ‘there has been a lack of further progress toward the Committee’s 2 percent inflation objective’. As expected, the rate statement kept the original passage regarding the need for greater confidence that inflation is moving sustainably towards the 2% inflation target. Thirty minutes after the rate announcement, the floor was cleared for Fed Chair Jerome Powell’s press conference. Powell noted that a rate hike is ‘unlikely’, and his base case scenario still includes rate cuts this year. Powell also communicated that it ‘appears’ it will take the central bank longer than anticipated to reach that level of confidence. The bottom line is the Fed remains in a good place with current policy, and we are far off talks of a rate hike. However, a rate cut is still not firmly on the table until disinflation progress is observed. As of writing, markets are leaning toward November’s meeting for the first 25bp cut, with 45bps of easing priced in for the year.
Additional Data This Week:
• Fed Chair Jerome Powell is scheduled to speak on 14 May at 2:00 pm GMT at the Netherlands' Foreign Bankers' Association.
• Month-on-month US Retail Sales for April on 15 May at 12:30 pm GMT. Following a rise of +0.7% in March, economists’ estimates indicate retail sales slowed to +0.4% in April.
• Employment data for Australia for April on 16 May at 1:30 am GMT. Employment change is anticipated to increase to 25,000 in April from March’s -6,600 decline. The unemployment rate is also expected to increase slightly to 3.9% from 3.8%.
• Year-on-year industrial production for China on 17 May for April at 2:00 am GMT. Following China’s industrial production slowing to 4.5% in March, current forecasts for April suggest a slight increase to 4.6%.
UK employment and wage data will be widely watched this week on Tuesday at 6:00 am GMT. Last week, the Bank of England (BoE) claimed a large part of the spotlight; albeit leaving the Bank Rate unchanged at 5.25% (16-year peak), a dovish shift was delivered in the shape of MPC votes. In a 7-2 vote to hold the Bank Rate unchanged, Deputy Governor David Ramsden joined external MPC member Swati Dhingra and voted for a rate cut. The shift did not come as much of a surprise, given his latest comments expressing confidence in the disinflation process: inflation risks remain ‘skewed to the downside’. Interestingly, history tells us that following a change in voting by Ramsden, the majority of the MPC members tend to follow suit; most recently, in late 2022, when he voted for increased hikes, the majority followed.
Adding to the dovish tilt was the downgrade in inflation forecasts. The central bank still projects inflation to reach the 2.0% inflation target in Q2 of this year (unchanged from the previous forecast) and then subsequently increase to approximately 2.6% in the second half of the year (down from 2.7% in the previous forecast). By Q2 2026, inflation is anticipated to be 1.9% (down from 2.2%) and then by 2027, slowing to 1.6%.
Ahead of June’s policy meeting, we have two inflation prints (22 May and 19 June) to consider and two wage/employment releases (this week and another report on 11 June).
For the three months to March, earnings (regular pay) are expected to slow to +5.9%, down from +6.0%, while wages (including bonuses), over the same period, are also expected to slow to +5.5%, down from +5.6%. A sizeable deviation to the downside here will likely open the door to trading opportunities for GBP shorts, even more so should the unemployment rate increase from 4.2% (although there are still concerns regarding survey issues with this release). Many desks still believe a June rate cut is on the table, but this will largely depend on incoming data leading up to the event. As of writing, the OIS curve is pricing in 61bps of easing for the entire year, with June’s probability of a cut at approximately 60%.
YoY US CPI Expected to Slow
The US CPI inflation report will also be a key print this week, scheduled for Wednesday at 12:30 pm GMT. Economists’ estimates indicate year-on-year headline inflation slowed to +3.4% in April at the headline level, down from +3.5% in March, with month-on-month data expected to rise +0.4%, matching March. The estimate range for both events is reasonably narrow: between +3.5% and +3.2% for the year-on-year print and between +0.4% and +0.3% month on month. For core inflation (excluding energy and food), year-on-year data is also expected to rise +3.6%, slightly slower than March’s +3.8% report, with the month-on-month core measure anticipated to rise +0.3%, down from March’s reading of +0.4%.
With the last four headline year-on-year prints delivering a beat, traders will look for a return of disinflation this week. A lower-than-expected number, data that matches or exceeds the 3.2% lower estimate, will likely see a dovish repricing and send the US dollar (USD) southbound. This would also likely lift equities and bonds (weighing on yields). For a higher-than-expected release, we can expect the opposite. Overall, however, traders will watch all four key metrics (headline and core for YoY and MoM) for a broad miss or beat.
You will recall that the Fed left its benchmark rate unchanged at 5.25%-5.50% for a sixth consecutive meeting in its last update and proved more dovish. The accompanying rate statement delivered a handful of sentence changes; the most prominent was the addition of the lack of progress on inflation, stating, ‘there has been a lack of further progress toward the Committee’s 2 percent inflation objective’. As expected, the rate statement kept the original passage regarding the need for greater confidence that inflation is moving sustainably towards the 2% inflation target. Thirty minutes after the rate announcement, the floor was cleared for Fed Chair Jerome Powell’s press conference. Powell noted that a rate hike is ‘unlikely’, and his base case scenario still includes rate cuts this year. Powell also communicated that it ‘appears’ it will take the central bank longer than anticipated to reach that level of confidence. The bottom line is the Fed remains in a good place with current policy, and we are far off talks of a rate hike. However, a rate cut is still not firmly on the table until disinflation progress is observed. As of writing, markets are leaning toward November’s meeting for the first 25bp cut, with 45bps of easing priced in for the year.
Additional Data This Week:
• Fed Chair Jerome Powell is scheduled to speak on 14 May at 2:00 pm GMT at the Netherlands' Foreign Bankers' Association.
• Month-on-month US Retail Sales for April on 15 May at 12:30 pm GMT. Following a rise of +0.7% in March, economists’ estimates indicate retail sales slowed to +0.4% in April.
• Employment data for Australia for April on 16 May at 1:30 am GMT. Employment change is anticipated to increase to 25,000 in April from March’s -6,600 decline. The unemployment rate is also expected to increase slightly to 3.9% from 3.8%.
• Year-on-year industrial production for China on 17 May for April at 2:00 am GMT. Following China’s industrial production slowing to 4.5% in March, current forecasts for April suggest a slight increase to 4.6%.