Markets often move on themes and these increase or decrease in importance over time. Inflation is a longstanding one, with welcome disinflation rearing its head again, though the pace of falling prices – that last mile to get to most central bank’s target – has been bumpy. There is now hope that US CPI is on a downtrend, while the Fed’s favoured inflation gauge, core PCE, may print with a one handle (+0.1) after the recent PPI data surprised to the downside

It was interesting to us that the cooler CPI data initially trumped the more hawkish dot plot change by the FOMC last week. Overall, the updated projections continue to signal nine cuts by the end of 2026, unchanged from the March update, albeit cuts that have been postponed. No doubt, the latter we think can change if the data becomes a trend.

Perhaps more important in the coming week will be the European political scene with uncertainty on the rise in France and Germany. This hit European stocks and the euro last week with equities suffering their biggest weekly loss of the year. The single currency saw its largest Friday-to-Friday drop versus the dollar in two months. In the short term, we will be watching this theme. Politics is sometimes tough to trade, but the potential chaos may vie with softer US data and yields when trading EUR/USD. We will also be watching EUR/CHF which is the usual FX pair for hedging European political risk.

Two central bank meetings will keep rates steady, and they could highlight the possible re-emerging theme of divergent central banks. The RBA is likely to remain vigilant on inflation, with a rate hike not out of the question in the coming months. The Bank of England requires more confidence on services inflation being less sticky before it contemplates any policy easing.