The market opened the week with news of an agreement between the U.S. and Iran to sign a peace deal on Friday, which would see the Strait of Hormuz reopened. Aside from that, Monday has no major scheduled economic events for the FX market.
Tuesday brings the BoJ monetary policy announcement in Japan and the RBA meeting in Australia. In the U.S., the focus will be on building permits and housing starts.
On Wednesday, the U.K. and the eurozone will release inflation data. In the U.S., attention will turn to retail sales m/m, while the main event of the week will be the FOMC meeting, the first under new Fed Chair Kevin Warsh.
Thursday brings GDP q/q data from New Zealand. In the U.K., markets will focus on the claimant count change, average earnings index 3m/y, unemployment rate, and the BoE monetary policy announcement. In Switzerland, attention will be on the SNB meeting.
Finally, on Friday, the U.K. and Canada will release retail sales m/m data.
At this week's meeting, the BoJ is expected to raise its policy rate by 25 bps to 1.00%. Although markets view this as the most likely outcome, there is a risk that policymakers may choose to delay the move due to uncertainty surrounding Governor Ueda’s health situation.
Inflation in Japan continues to increase, with risks skewed to the upside, particularly due to stronger wage growth and fiscal support measures that could add further upward pressure on prices. The core-core inflation measure is already above the BoJ’s 2.0% target, currently standing at 2.8%. Analysts expect another rate hike later this year, with additional increases possible in 2027 as the BoJ continues its policy normalization path.
From an FX perspective, the JPY is not expected to see a significant reaction from this move alone, as global factors such as energy prices and U.S. monetary policy are likely to remain dominant drivers, analysts from Wells Fargo said. Over the medium term, however, continued BoJ tightening could provide support for the yen and help correct some of its current real trade-weighted undervaluation.
In Australia, the RBA is expected to keep rates unchanged at 4.35%. According to Governor Bullock, the rate increases delivered so far were aimed at addressing inflationary pressures that were already present before the Middle East conflict started, giving policymakers time to assess the potential economic impact of the war.
A slightly softer-than-expected April CPI reading has provided the RBA with some flexibility to pause in the near term. However, Westpac analysts believe this relief may be temporary, as signs are emerging that higher input and production costs are increasingly being passed through to consumer prices. As a result, the bank continues to expect further policy tightening during the second half of the year.
In the U.S., the consensus for retail sales m/m is 0.5%, compared to the prior 0.5%, while core retail sales m/m are expected at 0.5% vs. 0.7% previously.
Wells Fargo analysts note that April’s increase in nominal retail sales was largely driven by higher prices, particularly at gas stations, while inflation-adjusted sales declined, suggesting that underlying consumer demand was weaker than the headline figures indicated.
A similar pattern may have continued in May, as fuel prices remained elevated and high-frequency spending data pointed to limited strength across most other retail categories. While spending outside of volatile sectors such as gasoline, autos, building materials and restaurants has remained modestly positive in real terms, consumers are increasingly allocating a larger share of their budgets toward energy-related expenses.
If fuel prices remain elevated while income growth slows, broader consumer demand could face increasing pressure. For now, the data is expected to show that goods spending entered the second quarter on a relatively stable footing, without signaling strong momentum.
In any case, markets are likely to remain focused on the upcoming FOMC meeting which is the first one with Kevin Warsh as Fed chair. Even though recent labour market data has shown resilience, the case for a rate cut is not considered the most likely outcome, especially given that core PCE inflation remains well above the Fed’s target.
There are no signs that wages or the labour market are running too hot, with unemployment sitting near the upper end of the Fed’s estimated full-employment range. This backdrop is expected to support a patient, data-dependent approach, particularly in the Chair’s communication.
Regarding the policy statement, attention is likely to focus on changes in the language, with the previous easing bias expected to be replaced by more neutral wording around future policy decisions. However, there is unlikely to be enough consensus for a shift toward a tightening bias at this stage, the Wells Fargo analysts said.
The updated dot plot is expected to show a tighter distribution of forecasts, particularly with the removal of lower-end projections. The 2026 median rate is likely to move higher, effectively eliminating previously implied rate cuts. The 2027 outlook will also be closely watched, as it could shape expectations around the Fed’s longer-term policy path. Overall, while the dot plot may show some notable adjustments, the Chair is expected to downplay its importance in guiding future policy expectations.
In Switzerland, the outlook is for the SNB to keep its policy rate unchanged at 0.00% considering the Bank's high reluctance to return to negative rates.
Inflation in the country has been steady with the year-over-year print at 0.6%, unchanged from the previous reading, and with headline inflation on the low end of the Bank's target of 0-2%. Traders will pay attention to any hints regarding a readiness to intervene in the foreign exchange market if necessary as the CHF is relatively strong.
In the U.K., the BoE is also expected to keep rates unchanged. Inflation data will be released on Wednesday, with consensus pointing to a rebound in April. However, analysts suggest this may be distorted by the timing of Easter.
It is also not yet clear whether the pass-through from higher oil and natural gas prices due to the Iran conflict have fully filtered through, especially given that household energy bills remain capped until July.
Labour market data will also be published just before the meeting. The consensus for the claimant count change is 25.8K, compared to the prior 26.5K while the average earnings index 3m/y is expected at 4.0% vs. 4.1% previously. The unemployment rate is forecasted to remain unchanged at 5.0%. The focus will be on whether last month’s weak payroll data, which showed a notable decline in employment, is revised higher.
Analysts from ING stress that attention at the BoE meeting will likely focus on the voting split rather than the decision itself. Chief Economist Huw Pill was previously the only member to vote for a rate hike, but recent comments suggest he may be joined by Megan Greene this time. A base case of a 7-2 vote is expected, although there is a risk of a wider hawkish minority if others, such as Claire Lombardelli or Catherine Mann, also support higher rates.
