Martins Kazaks, a policy maker at the European Central Bank (ECB), stated this morning that it is “most likely” the bank will begin its rate-cutting cycle in June. He added that their data-dependent approach has been appropriate so far. There also seems to be a consensus among the ECB council that inflation will fall to their 2% target rate, but the rate-cutting cycle should be gradual and not rushed.

In the UK, headline inflation numbers are expected to fall back to the 2% level as April’s data is released this week. The Monetary Policy Committee (MPC) carefully monitors economic data to inform markets when they can expect the first UK interest rate cut this year. Meanwhile, the Pound is currently trading at a two-month high against the Dollar, just under 1.2700.

Last week, softer-than-expected inflation data in the US prompted a broad sell-off of the US Dollar. Federal Reserve member Michelle Bowman said on Friday that although inflation is showing signs of moderating, there are still risks. As such, rate decisions will be data-dependent, and markets will also look for additional comments from other policymakers in the US.

In Europe, ECB council member Isabel Schnabel stated that the bank should be cautious about the timing of rate cuts due to the risk of cutting rates prematurely. This week, the release of April’s Purchasing Managers Index (PMI) will be closely watched for signs of moderating inflation and further affirmation that the ECB will begin cutting rates in June.

In the UK, inflation data is scheduled for release this Wednesday. Markets expect headline inflation to fall to 2.1% in April, down from 3.2% in the previous month. This anticipated decline will likely limit the Pound’s gains through the rest of May. This week, Bank of England Deputy Governor Ben Broadbent and Governor Andrew Bailey are expected to comment on the UK interest rate outlook, and their statements will be closely monitored.

In the US, Cleveland Federal Reserve President Loretta Mester stated today that current interest rate policy is appropriate and that it is too early to suggest that progress on reducing inflation has stalled. Ms. Mester also emphasized that the timing of rate cuts will be entirely data-dependent and that the Fed needs to remain vigilant.

Source: EUbusiness

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