Fed Likely To Cut Interest Rates In September, UK Earnings And Unemployment Rise

A Reuters poll published yesterday showed that most economists expect the Federal Reserve to relax its monetary policy in September. In the UK, data coming from the Office for National Statistics (ONS) showed that, although the unemployment rate rose, wages continue to grow.

UK Average Earnings And Unemployment Rate Surge

A report released by the ONS earlier today said that the unemployment rate in the UK rose to 4.3% in the first quarter of the year, marking a one-year high. Economists at ING said that the cooling labour market could bring forward an interest rate cut, suggesting that there is now a 50-50 chance for the cut to occur in June or July.

On the contrary, average earnings, excluding bonuses, rose by 6.3% in the January-March quarter. Deutsche Bank’s economists wrote: “Private sector regular pay growth – while still elevated – came down a little more than the Bank of England was expecting at 5.9% (3m/YoY). While we expect wage growth to remain sticky through the April period given the large 10% hike to the National Living Wage, this will give the MPC some confidence that data outturns are broadly in line with their own expectations.”

Eurozone GDP Q1 2024 Preliminary Data

Tomorrow Wednesday, Eurostat will publish some preliminary data regarding eurozone’s GDP. Market analysts expect the euro bloc’s GDP to rise by 0.3% in the first quarter on a quarterly basis, matching the Q4 2023 figure. On a year-to-year basis, the eurozone economy is expected to grow by 0.4%, once again matching the Q4 2023 reading.

Reuters Poll: Fed Likely To Cut Rates In September

A Reuters poll conducted between May 7-13 showed that two thirds (70 out of 108) of respondents see an interest rate cut by the Federal Reserve (Fed) in September. Economists polled also suggested that the US central bank could move forward with two rate cuts until the end of the year.

Analysts at Wells Fargo see the forecast as optimistic, pushing the first rate reduction even later than September. "We readily acknowledge that it would not take much for the start of the cutting cycle to be pushed back until November. What's more, the risks to that call are heavily skewed toward there being one cut in 2024 as opposed to three cuts," they suggest.

 Federal Reserve Vice-Chairman Phillip Jefferson said that it would be appropriate to maintain borrowing costs in the current level until there are signs that price pressures succumb. Jefferson noted that inflation is on the backfoot but still considers it a source of concern.

New Zealand: Win Over CPI Inflation?

The RBNZ’s quarterly Survey of Expectations was released on Monday, showing that economists and business leaders forecast a win over CPI inflation in the next months.

The quarterly survey of a handful of forecasters and company heads showed expectations were for inflation to slow from 3.22% to 2.73% in the next year or so, which could be the lowest pick recorded since September 2021.

Westpac economists said the RBNZ’s board would be glad regarding the survey’s results but noted: "While today's fall in inflation expectations will help to quell concerns  about the persistence of domestic inflation, we still think that inflation will fall more gradually than the RBNZ has assumed. Consistent with that, we're not forecasting rate cuts until early next year."

Test Your Trading Strategies on an Admirals Risk-Free Demo Account

Are you interested in practising trading without risking your funds? A demo trading account from Admirals allows you to do just that, whilst trading in realistic market conditions. Click the banner below to open a demo account today:

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.