Morning Brief – May Meetings

Charles Porter
Tue 18 Apr 2023

May Meetings

Between now and the first two weeks of May, there will still be a number of good opportunities for price adjustment. However, given the data calendar and current market positioning, it seems most likely that such volatility would be driven by investors’ expectations surrounding the set of central bank decisions in early May. This week in particular, with the exception of UK inflation, has a relatively sparse set of data releases. What it may lack in data it could certainly make up for in central bank speakers with key Fed and ECB policy makers due to speak ahead of their next decision on May 3rd and 4th respectively. 

Currently the market is priced in a rather balanced but still interesting place. For these Fed and ECB meetings in the first week of May, and the BoE decision the week after on the 11th May, the market is pricing on average of 25 basis point worth of hike from each central bank. You could be right in thinking three key central banks moving in lockstep is not so remarkable. However, given the relative inflation paths each economy has taken to get here and how much consensus on the respective May meetings has changed in recent weeks, such symmetrical pricing is surprising. 

Of the three banks, the ECB is currently priced as the most likely to out perform the 25-basis points expected from it. Speeches from policy markets and notably President Christine Lagarde later today will be watched closely to gauge appetite for such a move. Failure to hang onto residual hawkish expectations for the May meeting could leave the Euro vulnerable particularly given the drop in EURUSD late last week. For the UK, it will depend on the inflation data and whether a drop back below 10% is confirmed and deemed sufficient to justify a pause in the rate hiking cycle. UK inflation data will be watched closely and will be critical to GBP as investors adjust their May policy forecasts. 

Discussion and Analysis by Charles Porter

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