On Wednesday, the U.S. will publish the ADP non-farm employment change and the ISM services PMI. On Thursday, the focus in the U.K. will be on the Bank of England’s monetary policy announcement.
Throughout the week, several FOMC members are expected to deliver remarks.
The ECB has noted that policy is still restrictive and that disinflation is progressing. If this week's data comes in softer than expected, the Bank is likely to deliver another 25 bps rate cut at the March meeting, especially given the ongoing softening of economic conditions.
The ISM manufacturing PMI is expected to remain at 49.3, while ISM manufacturing prices are projected to print at 52.6, slightly up from the prior 52.5. The ISM manufacturing PMI is expected to stay in contractionary territory, but some indicators suggest that demand and production are showing signs of improvement. Analysts at Wells Fargo emphasized that it remains to be seen whether this is a temporary boost from pre-tariff demand or an early-stage recovery following a 100 bps rate cut from the Fed since September.
Overall, labor market data in New Zealand continues to soften but is showing signs of stabilization. The Monthly Employment Indicator (MEI) registered modest gains of 0.1% in December and 0.2% in November, following a 1.8% decline from March to October.
In terms of monetary policy, the RBNZ is expected to deliver a 50 bps rate cut in February. Since the latest data remains firmer than their forecasts, it is unlikely to alter their stance on rate cuts. Additionally, inflation continues to ease and remains in line with the RBNZ’s expectations, further supporting a 50 bps rate cut.
Compared to the manufacturing PMI, the ISM services index has remained in expansionary territory, with all components showing growth. This week’s data is expected to remain strong, and analysts from Wells Fargo highlight that a key focus will be on industry commentary regarding pricing and demand, particularly in relation to tariff expectations.
At this week's meeting, the BoE is expected to deliver a 25 bps rate cut to 4.50% together with a dovish statement.
A downward revision to the BoE’s inflation forecasts, particularly if they fall below 2% in the medium term, could lead markets to anticipate more aggressive rate cuts, aligning with the 100 bps of easing expected in 2025.
Overall, Canada's labor market continues to soften, with a growing labor force likely contributing to the increase in the unemployment rate, according to RBC analysts. Hiring demand remains weak, with job openings 23% below year-ago levels and businesses signaling limited hiring plans. Wage growth is slowing, and layoffs have played a significant role in the rising unemployment rate.
In the U.S., the consensus for average hourly earnings m/m is 0.3% vs prior 0.3%. The non-farm employment change is expected at 154K, down from the prior 256K, while the unemployment rate is likely to remain steady at 4.1%.
According to Wells Fargo analysts, average hourly earnings likely advanced 0.3% in January, which reinforces the idea that the labor market is no longer driving price pressures with inflation stuck above the Fed's target.
This article was written by Gina Constantin at www.forexlive.com. Read More Details
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