Dollar Wavers Amid Fed Commentary; Pound Subdued Awaiting BoE Clarity; Euro Faces Uncertainty Over ECB Rate Path.

USD: The US Dollar (USD) wavered on Monday amid a flurry of commentary from Federal Reserve officials. Raphael Bostic, President of the Atlanta Fed, maintained a restrictive outlook, observing the slow pace at which the US economy has decelerated this year. Bostic suggested that this gradual slowdown might help reduce persistent US inflation over time. Adopting a more hawkish tone recently, Bostic highlighted the numerous risks the Federal Reserve faces, including ongoing US inflation, geopolitical tensions, and policy uncertainty. He stated: “We do a lot of talking to business leaders, and what they’re all telling us is that things are slowing down. The other thing the executives say is that pricing power is weakening. My outlook is that inflation will continue to fall this year and into 2025, but prices will drop more slowly than many had expected. It will take a while before we know that for sure.” Bostic also mentioned that there have been no changes in his outlook on upcoming monetary policy, affirming his expectations that easing might occur in the final quarter of the year.

GBP: The Pound (GBP) was mostly subdued on Monday due to a lack of new UK economic data, leading investors to focus on the latest Bank of England (BoE) commentary. Following a period of mixed policymaker rhetoric and conflicting macroeconomic data, markets are divided on when the BoE will begin its monetary unwinding cycle. Last week, BoE hawks Megan Greene and Catherine Mann pushed back against monetary easing, but Ben Broadbent offered a more dovish view in his Monday morning address. Broadbent commented: “There is a range of views across the Committee on this point. Given the rarity of events like this in the past and the associated uncertainty about the future, that’s entirely understandable. Whatever the priors of its individual members, the MPC will continue to learn from incoming data, and if things evolve with its forecasts—which suggest policy will have to become less restrictive at some point—then it’s possible Bank Rate could be cut sometime over the summer.” With UK data scarce throughout the afternoon, GBP remained a less attractive investment as the session ended.

EUR: On Monday, uncertainty about the ECB’s rate path post-June limited the Euro’s gains. Nevertheless, rising investor expectations of a June ECB rate cut provided some support at the start of the week. Investors are awaiting preliminary private sector PMI numbers for more clues on inflation trends, which will be released on Thursday. Early Tuesday (May 21), German producer price figures for April will draw attention, with economists forecasting a 3.2% year-on-year fall after a 2.9% decline in March. Producers might reduce prices in a weakening demand environment, easing inflationary pressures. Weaker-than-expected numbers could increase investor expectations of post-June ECB rate cuts. Eurozone trade data also require consideration, with economists forecasting the trade surplus to narrow from €23.6 billion to €19.9 billion in March. Deteriorating trade terms might also influence the ECB’s rate path, but import and export figures are crucial. Amidst rising uncertainty about the post-June ECB rate path, investors should monitor ECB commentary. Support for multiple interest rate cuts could drive demand for DAX-listed stocks.