The US Federal Reserve Minutes will lead the financial markets this week. In addition, investors are waiting for the release of local Manufacturing PMIs for May by many countries tomorrow. Meanwhile, the overall market will be paying particular attention to the US manufacturing PMI results. Due to the continued high US inflation data and the slight decline seen in the April PPI announced earlier this month, combined with the Fed’s previous interest rate hikes. As a result, market analysts continue to predict the expansion of rate hikes, which they forecast may trigger a PMI slowdown.
Many Countries Will Announce Their Manufacturing PMIs for May
The dollar index ended a six-week bullish streak after retreating from its 20-year highs. This was the poorest weekly performance since February and was mainly attributed to concerns that the Fed’s sharp interest rate hikes have dragged the US economy lower. The dollar fell against major currencies, with the euro returning above the 1.05 mark with further gains expected with the help of the latest ECB minutes. In addition, the latest UK jobs report also eased the market’s worries about the country’s economic outlook. The market maintained the Bank of England interest rate hike expectations for June. As a result, the pound recorded its biggest weekly gain since December 2020.
Multiple countries will announce their May manufacturing PMIs this week. Suppose the continuous slowdown indicates that the economic outlook is expected to weaken. In that case, the dollar may regain safe-haven buying demand. But more importantly, looking at the Fed’s May policy meeting minutes will give more details on the interest rate outlook. The Fed raised interest rates by 50 basis points for the first time in 20 years and planned to start shrinking its vast balance sheet in June.
The dollar held the 103 mark at the end of last week but was headed lower early on Monday. Suppose the Fed minutes indicate a hawkish stance, and the US data is relatively sound, the dollar index has a chance to retest the 104 mark again. Conversely, failing to get positive guidance would shift the focus to this month’s low of 102 or lower.
The Reserve Bank of New Zealand is expected to raise interest rates by 50 basis points at its policy meeting on May 25. For the first time, the RBNZ will raise rates by 50 basis points at two consecutive policy meetings, indicating the urgency of its aggressive tightening policies to deal with inflation.
The New Zealand dollar rose to 0.6400 at the end of last week. As many would expect, the RBNZ raised interest rates by 50 basis points and held an open position on more rate hikes, which may push the NZDUSD to 0.6530 if the US dollar remained under pressure.
