The USD is lower to start the US session with the GBP the biggest mover at -0.41%. The USD is lower by 0.23% vs EUR and -0.20% vs the JPY. This week, there are 4 central bank decisions with the Fed highlighting on Wednesday at 2 PM. The Bank of Canada will also another decision on Wednesday morning. Both central banks are expected to cut rates by 25 basis points. The Bank of England will announce its decision on Thursday, and the Bank of Japan on Friday.
Societe Generale weighed in on the Fed and is joining Standard Chartered in calling for a 50 bps Fed rate cut this week, though markets only see about a 4% chance and consensus is for 25 bps. The bank argues the Fed has overshot with its restrictive stance, and a sharper recalibration is needed despite lingering inflation concerns, as risks have shifted more toward employment.
In contrast, Credit Agricole expects the Fed to cut rates by 25 bps this week but warns the move could come with a hawkish tilt, stressing sticky inflation and a firm labor market. That stance would limit scope for further near-term cuts, potentially forcing markets to reassess dovish expectations and offering support to the dollar. The bank also sees easing concerns about the greenback’s reserve status, arguing it should stabilize in the coming months and even stage a broad recovery by 2026 as fundamentals and rate differentials align.
ECB's Schnabel and Kazimir spoke earlier today:
Isabel Schnabel (ECB Executive Board)
Schnabel said interest rates are “in a good place” as inflation stabilizes around the 2% target and the economy remains resilient. She highlighted that sentiment towards the euro area is improving, easing financial conditions. While food price inflation is re-accelerating, risks to consumer expectations remain, and core services inflation is still elevated, although domestic disinflation is underway. She emphasized that policy should remain steady, with risks skewed to the upside, and current interest rates support household income and mortgage demand.Peter Kazimir (ECB Governing Council)
Kazimir stressed that monetary policy should not change simply because of small deviations from the inflation target. Instead, the ECB should maintain nimbleness and decide policy on a meeting-by-meeting basis. He echoed Christine Lagarde’s earlier comments that minor deviations from the 2% inflation target are not enough to justify altering policy direction. In contrast
Weekend commentary was somewhat positive on US and China trade deal. US Treasury Secretary Bessent said they made good progress on technical details. Pres. Trump said that China pays a lot of tariffs but talks with them are going well. He also called the Fed chair incompetent and blamed him for hurting the housing market. He has 3 people that he likes a lot for Fed chair.
Meanwhile, Australia said that they and China will hold high-level talks in Beijing this week.
The US stocks are trading higher in premarket trading
- Dow industrial average is up 89 points
- S&P index is up 15.71 points
- NASDAQ index is up 47 points after closing at a record level on Friday.
In the US debt market, yields are now trading marginally lower
- 2-year yield 3.543%, -1.5 basis points
- 5 year yield 3.619%, -0.6 basis points
- 10 year yield 4.060%, unchanged
- 30 year yield 4.679%, +0.1 basis points
