**Weekly Macro and Policy Wrap-Up: Market Developments and Central Bank Trends**
*Original Insights by ForexLive’s Justin Low, with additional reporting and analysis*
The past week in global markets was marked by notable macroeconomic and monetary policy shifts, especially as central banks across advanced and emerging economies offered insights into their future rate trajectories. From the Federal Reserve’s dovish inclinations to the Bank of Japan’s cautious approach, financial markets were caught in a tug-of-war between inflation expectations, central bank guidance, and economic data surprises.
This article will provide an in-depth review of last week’s economic trends, central bank developments, and key policy decisions driving major currency and asset market movements. Additional insight comes from global financial institutions like ING, Bloomberg, and Reuters for a more comprehensive picture.
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### United States: Fed Policy Patience Drives Markets
The U.S. Federal Reserve held its policy rate steady this past week, leaving the federal funds target range at 5.25% to 5.50%. While no immediate rate cut was implemented, a dovish tilt was perceived in the comments that followed the Federal Open Market Committee (FOMC) meeting.
**Key Highlights:**
– Fed Chair Jerome Powell emphasized that while inflation has not yet returned to the 2% target sustainably, recent data supports a gradual improvement.
– Financial markets interpreted Powell’s comments as leaning dovish. He stated that the Fed is likely past the peak in rates and suggested that rate cuts could be possible later in the year if inflation continues to cool.
– The Fed’s preferred inflation measure, the Core PCE price index, rose just 0.2% on the month and 2.8% year-on-year, reinforcing the disinflationary trend.
– Treasury yields fell sharply as a result of the dovish market reaction. Ten-year yields fell below critical levels not seen since March.
– Stock markets rallied in response to easing rate expectations. The S&P 500 and Nasdaq both closed the week near record highs.
This Fed policy stance has refocused market participants on upcoming data releases, particularly monthly inflation and jobs data, as determinants of the timing for future easing.
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### Eurozone: The ECB Prepares the Stage for June Cut
The European Central Bank (ECB) didn’t hold a policy meeting this week but reinforced its dovish messaging through various Governing Council members.
**Developments and Expectations:**
– ECB President Christine Lagarde reiterated that inflation is gradually moving toward the 2% threshold and that rate cuts could begin in June.
– Core inflation in the euro area declined to 2.7% in April from 2.9% in March.
– ECB Chief Economist Philip Lane suggested that sustained improvement in wage growth, inflation data, and energy markets would make the case for cutting rates more compelling by the summer.
– Market participants are now pricing in a high probability of the first 25-basis point ECB rate cut in June, with at least two more cuts by the end of the year considered likely.
Despite this optimism, eurozone growth remains moderate. Q1 GDP rose 0.3% after two consecutive quarters of contraction, helping the region narrowly avoid a technical recession.
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### United Kingdom: Bank of England Straddles Defensive Policy
The Bank of England (BoE) voted 7-2 to keep rates unchanged at 5.25% during its Monetary Policy Committee (MPC) meeting last week. BoE Governor Andrew Bailey said that inflation remains a concern but flagged that the bank might start considering easing if trends continued to improve.
**Key Takeaways:**
– The BoE upgraded its GDP forecast and expects inflation to approach the 2% CPI target by mid-2024.
– However, services inflation and wage growth still run high, making policymakers wary of moving too quickly.
– Deputy Governor Dave Ramsden and MPC member Swati Dhingra voted for a rate cut, the highest number of dissenters for easing since rate hikes
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