However, there is one more box the Fed wants to tick before it starts its lift-off mission. It wants confirmation that the weakness in Q1 was indeed due to temporary factors and that growth has bounced back to the 2.5% cruising speed as it expects. We believe we will see this in the coming months and that it will pave the way for lift-off in September. This is now very much the consensus view among analysts but the market is still pricing the first hike in December.
We are already seeing tentative signs that the economy is rebounding: initial jobless claims have pushed lower over the past one to two months and the Conference Board’s leading indicator showed the strongest increase in April since July last year (see Strategy: Euro area growth takes a breather while US rebounds, 22 May). We expect growth to increase to around 2.5% in both Q2 and Q3 and believe we will see more signs of this materialising in upcoming data releases. Next week offers important information, with the release of ISM manufacturing for May on Monday, where we are looking for a slight increase from 51.5 to 51.7. The job report on Friday will also be in focus, although the Fed does not put too much weight on a single report. However, it wants to see a continued steady improvement of the labour market with job growth around 200,000 per month. We expect a rise of 220,000 (in line with consensus of 223,000).
Recommended Content
Editors’ Picks
EUR/USD holds firm above 1.0700 ahead of German inflation data
EUR/USD trades on a firm footing above 1.0700 early Monday. The pair stays underpinned by a softer US Dollar, courtesy of the USD/JPY sell-off and a risk-friendly market environment. Germany's inflation data is next in focus.
USD/JPY recovers after testing 155.00 on likely Japanese intervention
USD/JPY is recovering ground after crashing to 155.00 on what seemed like a Japanese FX intervention. The Yen tumbled in early trades amid news that Japan's PM lost 3 key seats in the by-election. Holiday-thinned trading exaggerates the USD/JPY price action.
Gold price bulls move to the sidelines as focus shifts to the crucial FOMC policy meeting
Gold price (XAU/USD) struggles to capitalize on its modest gains registered over the past two trading days and edges lower on the first day of a new week, albeit the downside remains cushioned.
Ripple CTO shares take on ETHgate controversy, XRP holders await SEC opposition brief filing
Ripple loses all gains from the past seven days, trading at $0.50 early on Monday. XRP holders have their eyes peeled for the Securities and Exchange Commission filing of opposition brief to Ripple’s motion to strike expert testimony.
Week ahead: FOMC and jobs data in sight
May kicks off with the Federal Open Market Committee meeting and will be one to watch, scheduled to make the airwaves on Wednesday. It’s pretty much a sealed deal for a no-change decision at this week’s meeting.