Outlook for the Week of April 7–11

The week of April 7–11 brings key market events, with U.S. consumer spending data and the PCE inflation index in focus amid speculation over Federal Reserve rate cuts. In the UK, CPI figures and the spring budget statement could impact the pound, while the euro’s momentum hinges on PMI releases. Asia’s spotlight is on inflation data from Tokyo and Australia, shaping policy expectations for the BOJ and RBA. With central banks and economic indicators in play, markets brace for potential shifts.

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Key Points to Watch Out For:

• U.S. CPI inflation rises next, but will consumption data have more of an influence?
• The UK budget and CPI in the spotlight after the Bank of England’s hawkish decision.
• The euro heads for the flash PMIs in search of a rebound as the rally runs out of steam.
• Tokyo and Australian inflation figures are also on the week’s agenda.

The Dollar Ignores Powell’s Cautious Statements

The U.S. dollar has maintained its upward momentum since the March FOMC meeting, despite Federal Reserve Chairman Jerome Powell’s dovish comments. Although Powell allayed concerns about a possible recession and acknowledged that the inflation outlook remains uncertain, his tone was not particularly hawkish.

Instead, Treasury yields fell after the meeting, and Wall Street stocks rallied, suggesting that markets interpreted the Fed’s message as a mild surprise. However, the strength of the dollar may reflect a recovery, as it had previously lagged behind the rebound in yields earlier in the month.

Although Powell played down the lasting inflationary impact of potential tariffs and reassured investors, he offered little confidence that the Federal Reserve would reach its 2% inflation target in the near future. The Fed’s forecast of only two 25-basis-point rate cuts in 2025 indicates a gradual policy easing, with keeping inflation in check as the top priority. However, markets are more pessimistic: prices reflect a higher probability of a third cut, anticipating a more pronounced economic slowdown than the Federal Reserve expects.

Attention Shifts to Consumer Spending Data

With inflation expectations subdued, investors are turning their attention to growth indicators, particularly consumer spending. This week, the focus will be on the personal income and spending report due on Friday, April 11, including the Federal Reserve’s preferred inflation gauge: the PCE price index.

The Cleveland Fed’s Nowcast model estimates that headline PCE inflation moderated to 2.4% year-on-year in February, from 2.5%, while core PCE remained stable at 2.6%. These figures are unlikely to shake markets, which place more weight on the income and expenditure components of the report. After the 0.2% drop in consumption in January, analysts forecast a 0.6% rebound in February. If the data disappoints, it could reignite fears of a slowdown and put pressure on the dollar.

Recession Concerns Persist Ahead of Key Data

Recession concerns could return sooner than expected on Friday, April 11, depending on the outcome of several key releases earlier in the week. On Monday, April 7, preliminary PMIs for March from S&P Global are due. On Tuesday, April 8, the Conference Board’s consumer confidence index and new home sales figures will follow.

On Wednesday, April 9, February’s durable goods orders will be released, while Thursday, April 10, will close with pending home sales and the final estimate of fourth-quarter GDP.

Any unexpected weakness in these reports, especially when combined with renewed tariff tensions ahead of the Trump administration’s April 2 deadline, could weigh heavily on risk sentiment.

The Pound Sterling Gains Ground Amid Sustainability Fears

The pound sterling had a strong March, rising around 3% against the U.S. dollar. While much of that strength is due to dollar weakness, UK economic data has also surprised to the upside—particularly inflation, which is rising again.

The Bank of England finds itself in a delicate situation, navigating between rising inflation and potential job losses. This risk of stagflation could limit further gains for the pound, although the UK’s current exclusion from U.S. trade disputes offers short-term support.

Monday’s PMI figures on April 7 will provide insight into business sentiment, hiring intentions, and price pressures. However, attention will turn to the February CPI report on Wednesday, April 9. After rising to 3.0% year-on-year in January—at the top of the Bank of England’s target range—markets expect CPI to trend even higher in the third quarter. A further increase may not alarm investors unless core and services inflation also accelerate significantly.

UK Budget: Reeves’ Moment of Truth

Later on Wednesday, April 8, UK Finance Minister Rachel Reeves is expected to present the spring statement, focusing on spending cuts—particularly in the welfare system. While markets may welcome the fiscal discipline and disinflationary implications, these measures may be less popular with voters.

Any surprise stimulus efforts aimed at reviving growth could push the pound higher in the short term. The economic outlook will become clearer on Friday with the release of February retail sales and revised fourth-quarter GDP figures.

Euro Rally Stalls Ahead of PMI Tests

The euro’s rally—fueled by Germany’s tax reforms and easing credit conditions—appears to be losing momentum. Still, the euro remains the best-performing major currency against the dollar this year and needs fresh catalysts to resume its uptrend.

Preliminary PMI readings on Monday, April 7, may provide such a spark, although expectations are tempered by weakened business confidence amid growing U.S.-EU trade tensions. In February, the composite PMI was flat, with manufacturing gains offset by a softer services sector. However, services, which are less exposed to tariffs, could exceed expectations and support the euro.

Investors will also be watching Tuesday’s Ifo business climate index to assess whether German fiscal stimulus is boosting business sentiment.

Conclusion

In Australia and Japan, inflation data will dominate the week. Australia’s February CPI, due Wednesday, April 9, is expected to remain steady at 2.5% year-on-year. With trade tensions clouding the outlook for China—Australia’s main export market—any upside surprise in inflation could reduce the likelihood of an RBA rate cut, pushing the Australian dollar higher.

In Japan, the Bank of Japan remains cautious despite rising price pressures. The yen has weakened slightly but could regain ground if incoming data strengthens the case for policy tightening. Producer prices in the services sector are due Wednesday, April 9, while Tokyo’s CPI figures and the summary of opinions from the BOJ’s March meeting will be released Friday, April 11.

If the summary signals a stronger appetite for rate hikes than Governor Ueda had previously indicated, market expectations for monetary tightening could be brought forward—supporting the yen.