It will be a busy week for the FX market in terms of economic events, but it will start slow with nothing significant on the calendar for Monday. That said, the market will pay attention to any developments from the conflict in the Middle East.
On Tuesday, the focus will be on the Bank of Japan monetary policy announcement and its core CPI y/y. In the U.S., we’ll get Conference Board consumer confidence and the Richmond manufacturing index.
On Wednesday, Australia will release inflation data, the Bank of Canada will hold its monetary policy meeting, and the U.S. will get the highly anticipated FOMC decision.
Thursday brings monetary policy announcements from the Bank of England and the European Central Bank. In addition, the U.S. will release its advance GDP q/q, the core PCE price index m/m, the employment cost index q/q and the unemployment claims figures.
On Friday, Japan will publish the Tokyo core CPI y/y while in Europe most markets will be closed for Labor Day.
At this week’s BoJ meeting, the consensus leans toward further tightening, although analysts note that the backdrop is less straightforward than it was a few months ago.
Inflation has started to ease, particularly the headline CPI, but this may be temporary and largely reflective of government energy support measures. Beyond that, underlying price pressures remain a concern.
The Bank will continue to monitor wage growth closely. With another round of Shunto negotiations delivering pay increases above 5%, policymakers see stronger evidence that inflation is being supported by sustained income gains rather than temporary factors alone.
Economic growth remains modest and appears to be losing some momentum, partly due to energy-related shocks. However, this is not yet seen as a reason to halt tightening.
Even though the April meeting could still bring a rate hike, the most likely outcome is that policymakers will keep rates unchanged for now, while maintaining a hawkish tone, as they wait for clearer signals from oil prices, currency movements, and broader financial conditions.
Analysts from Wells Fargo expect a rate hike at the June meeting and at least one more until end of the year bringing the rate to 1.25%. However, there are upside risks to that rate level if the yen remains weak or energy costs continue to rise. Conversely, a de-escalation in the Middle East could support a slower pace of tightening.
In Australia the consensus for the CPI m/m is 1.3% vs prior 0.0%; for the CPI y/y it’s 4.8% vs 3.7% and the trimmed mean CPI m/m is expected at 0.3% vs 0.2% previously.
Inflation data for Australia is expected to run hot with the Middle East tensions remaining the main driver. Even though the effects were limited in the March data, it will be different for this month’s figures and the impulse is still building. The impact will likely be more widespread in the June quarter and over the remainder of the year.
Westpac analysts stress that underlying inflation is also holding firm. Trimmed mean CPI is projected near 0.9% q/q, keeping the annual pace in the mid-3% range. While core measures tend to react more gradually, they’re not insulated from rising energy costs, and momentum is expected to strengthen through the second half of the year. In short, Q1 likely marks the beginning of a renewed inflation push rather than the peak and markets are looking for firmer price pressures ahead.
The BoC is widely expected to keep rates on hold at this week’s meeting as it balances rising inflation against still-manageable economic conditions.
Markets will focus on policymakers’ assessment of the recent pickup in prices, with headline inflation likely to move back above the 1-3% target band in April, driven by higher energy costs. The Bank will need more data before making any policy adjustments and is likely to remain in a wait-and-see mode for now.
Energy-driven inflation is largely beyond its control, and given the lag in policy transmission, the focus will remain on the medium-term outlook. As long as core inflation and expectations stay contained, there is scope for patience despite higher fuel costs.
Inflation expectations have edged up slightly, but softer core trends provide some offset. Growth remains broadly in line with forecasts, and while the labour market is stabilizing, it is not tight enough to generate significant inflationary pressure. ING analysts expect the BoC to keep rates steady through 2026, though the market is generally pricing a 25bps hike by year’s end.
At this week’s meeting, the ECB is expected to keep rates on hold. The decision comes shortly after the release of key data on growth, inflation, and employment.
The Bank is likely to adopt a wait-and-see approach before making any further policy moves. As in other regions, higher energy costs in Europe are expected to push up headline inflation. The key question is whether these pressures begin to feed into core prices, although any spillover effects may take time to materialize.
On the growth side, Q1 GDP will provide a snapshot of the economy before the surge in energy prices in March. Early indicators suggest that momentum has softened, so after a relatively resilient 2025, this year may be starting on a weaker footing.
Turning to the BoE, expectations are for rates to remain unchanged at 3.75%. The Bank is likely to highlight the impact of the energy shock, which is contributing to higher inflation alongside weaker growth.
For now, the bar for further tightening remains high. Wage growth is still relatively subdued, and the recent dip in unemployment appears to reflect lower labour force participation rather than a meaningful improvement in hiring, Wells Fargo analysts said.
Inflation pressures have picked up, but are largely driven by fuel prices. The recent improvement in activity data may reflect short-term front-loading ahead of expected price increases rather than sustained momentum.
Overall, policy is likely to remain on hold through 2026, with rates already close to the upper end of the BoE’s estimated neutral range. Risks remain slightly tilted toward further tightening, but mainly if services inflation begins to feed more persistently into wages.
Thursday brings a heavy slate of U.S. data, starting with advance GDP q/q, where the consensus is 2.2% versus 0.5% previously. The core PCE price index m/m is expected at 0.3% compared to 0.4% prior.
The main focus is on Q1 GDP, following a softer 0.5% annualized expansion in Q4 that was distorted by the October government shutdown. That drag is expected to reverse at the start of the year, with public spending rebounding and supporting overall activity.
Beneath the surface, however, the growth mix appears uneven. Technology investment remains a key driver and continues to expand strongly, while net trade is expected to be broadly neutral.
Residential investment is still a drag, and consumer spending is likely to be more subdued after poor weather conditions early in the year disrupted activity. Overall, growth is expected to recover to around 2.7% annualized according to ING.
Alongside GDP, attention will also turn to the Q1 employment cost index, a key measure of labor cost pressures. Easing wage growth should help contain concerns about second-round inflation effects, even as core PCE inflation is expected to edge higher temporarily to around 3.2% from 3.0%. Taken together, this suggests limited urgency for the Fed to adjust monetary policy in the near term.
The consensus for Tokyo core CPI y/y is expected to rise from 1.7% to 1.8%. The increase is expected to be modest, driven by seasonal price changes and growing energy costs.
The report will be published after the BoJ meeting, and the Bank is expected to closely monitor it for confirmation that price pressures remain sticky.
Uncertainty around energy prices is likely to continue adding pressure as Japan faces several headwinds, including higher import prices due to yen weakness
