The week of June 2–6 could bring significant volatility to global markets, with attention centered on key U.S. data releases and multiple central bank decisions. In the U.S., ISM PMIs and the nonfarm payrolls report will shape expectations around Fed policy, especially if wage growth and hiring remain strong. Meanwhile, the ECB is widely expected to cut rates, with the market reaction hinging on the tone of Lagarde’s comments and updated forecasts. The Bank of Canada is likely to hold steady amid sticky inflation, while Australia’s GDP report may offer clues on the RBA’s next move. Ongoing trade tensions, especially from renewed tariff threats by Trump, add another layer of uncertainty to a week packed with potential market movers.
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Key Points To Watch Out For:
- ISM PMI and NFP data will set the stage for Fed interest rate bets
- The ECB is preparing to cut rates and shift its focus to the outlook
- The Bank of Canada to hold rates amid inflation worries
- Australia’s GDP figures also on the agenda
- The dollar experiences sharp swings ahead of the release of nonfarm payrolls
The Dollar Swings as Focus Shifts to U.S. Data
The U.S. dollar fell again on Thursday last week, trimming earlier gains. Even so, it managed to close higher for the week against major currencies.
A couple of weeks ago, President Trump threatened to raise tariffs on EU products to 50% from June 1, citing slow negotiations. However, days later, he extended the deadline to July 9 after a “very nice” phone call with European Commission President Ursula von der Leyen. The postponement, along with ongoing talks with the UK and the EU, reinforced expectations that Trump’s tough rhetoric is part of his negotiating strategy.
Markets received a temporary boost when a U.S. trade court blocked Trump’s tariffs, arguing that he had overstepped his authority. However, the optimism was short-lived, as a federal appeals court subsequently reinstated the most drastic tariffs.
Despite persistent uncertainty about global trade, the resumption of negotiations and the reduced risk of recession have led traders to lower their expectations of Fed rate cuts. Markets now anticipate 50 basis points in cuts by the end of the year, in line with the Fed’s own forecasts. The latest FOMC minutes, which highlight persistent inflation concerns, likely influenced this shift in sentiment.
Key U.S. Data to Drive Rate Expectations
All eyes are now on key U.S. data. The ISM manufacturing and services PMIs will be released on Monday, June 2, and Wednesday, June 4, while the highly anticipated employment report is scheduled for Friday, June 6. Nonfarm payrolls have exceeded expectations for two consecutive months. A solid reading would reinforce the resilience of the labor market.
Given the Fed’s focus on inflation, average hourly earnings could take center stage. Wage growth above 3% could lead markets to further reduce their bets on a rate cut, especially if ISM data confirms the business recovery suggested by S&P Global’s PMIs. This scenario could give the dollar room to regain lost ground.
Traders will also be watching for comments from Fed officials, including Goolsbee, Bostic, Logan, and Harker.
Will the ECB’s Rate Cut Weigh on the Euro?
Beyond the U.S., attention is also focused on the monetary policy decisions of the European Central Bank (ECB) and the Bank of Canada (BoC), scheduled for Thursday, June 5, and Wednesday, June 4, respectively.
The ECB cut rates by 25 basis points in April, citing increased uncertainty stemming from Trump’s trade policies and tighter financial conditions. Policymakers noted that the disinflation process is continuing, leaving the door open for further easing measures.
Since then, data has shown a slight economic improvement in the first quarter, with core inflation rising to 2.7% in April, even though headline CPI remained at 2.2%. This led investors to discount only 55 basis points of cuts by the end of the year, even though May PMIs showed a contraction in business activity.
Preliminary CPI figures for May, due to be released on Tuesday, June 3, could shift expectations again. A 25bp cut this week is almost fully priced in. The impact on markets will therefore likely depend on the tone of the statement, the updated economic forecasts, and Chair Lagarde’s press conference.
Her recent comments suggest that global trade will not return to the pre-tariff situation, implying further headwinds for the economy.
If the ECB conveys a dovish message alongside the cut, the euro could weaken. Still, the euro has held up relatively well against the dollar, and any new round of threats from Trump could reignite support for the single currency.
Bank of Canada: Persistent Inflation Could Delay Further Cuts
As for the Bank of Canada, the April meeting marked a pause after seven consecutive interest rate cuts, as policymakers became more cautious about inflation.
Headline CPI slowed to 1.7% in April, largely due to the removal of the carbon tax. However, core indicators, such as median CPI and trimmed mean CPI, reached 13-month highs, suggesting persistent underlying price pressures.
Markets expect the BoC to keep rates unchanged, with a further 25bp cut expected in September. For the Canadian dollar to extend its gains, policymakers may need to adopt a more hawkish tone on inflation, which could push back expectations for rate cuts even further.
Canada’s employment report, due on Friday, could also influence sentiment. A strong reading would reduce the likelihood of imminent easing and offer additional support to the Canadian dollar.
Australia’s GDP to Guide RBA Policy Outlook
Finally, Australia’s first-quarter GDP figures will be released on Wednesday, June 4, during the Asian session. At its last meeting, the RBA cut rates by 25 bps to two-year lows, pointing to diminishing inflation risks amid global headwinds. The meeting minutes, due on Tuesday, could offer further insight.
Despite the dovish stance, the Australian dollar has remained resilient, likely supported by improved risk appetite. Decent GDP data could help the Australian dollar rise slightly.
Conclusion
The first week of June is set to test market sentiment, with U.S. data likely to dominate the agenda while central bank moves from the ECB, BoC, and RBA could drive volatility in currency markets. Traders should stay alert and responsive to fast-developing narratives across both economic data and geopolitical risks.
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