With the FOMC into its “blackout” period in front of the Fed meeting on Wednesday 17th June, the attention will be on the implications for data. That means CPI inflation and the prelim Michigan Sentiment will be watched. There are though other central banks in focus, with the ECB meeting likely to be interesting, and the Bank of Canada too. 

  • After Friday’s jobs disappointment, attention for US data switches back to inflation and Michigan Sentiment.

  • The ECB needs to be careful to manage expectations of a PEPP tapering.

  • Expect the Bank of Canada to stay on track


US inflation again in focus

Bond yields and the US dollar fell on Friday after the Non-farm Payrolls report painted a picture of a labor market struggling the fill jobs vacancies. However, the supply shortage of labor is driving up wages (which came in higher than expected in May) and therefore prove to be inflationary.

So moving forward to the US inflation data this week, this could be another announcement to cause a stir in the bond markets. Headline CPI is expected to rise to 4.7% and even core inflation to 3.4%. 

With high prices of commodities, we could continue to see inflation rises outstripping expectations. This could see Treasury yields pull higher once more and create elevated volatility across forex and commodities. 

Higher inflation creates a problem for the Federal Reserve and could pull forward tightening expectations. This could also weigh on equity markets around all-time highs again.

US inflation data 

The consumer is also in focus with the prelim reading of Michigan Sentiment. COnsumer indicators slipped in May and it means that this month’s reading would certainly raise an eyebrow or two on the FOMC if it drops back again. The expectation is for a mild increase to 84.0 (from 82.9).

Michigan Sentiment


ECB has a tightrope to walk

The ECB meeting in April was arguably one of the most forgettable in a long while. However, with staff economic projections to be announced and the end of the period of a quarter in which the PEPP purchases would be front-loaded, there will be a lot more interest this month.

Staff projections may not change too much, but given the accelerating vaccine roll-out and inflationary forces, there is clear room for upside revisions.

ECB staff projections March 2021

The key for the meeting will be how the Governing Council navigate taper talk. This will certainly be a focus for press conference questions, however, a change to wording in the statement could be used to set the path. It is still too early for the ECB to taper, but discussion of the taper is possible. However, the ECB’s main aim will be avoiding a sharp increase in Government bond yields. 

Subsequently, a subtle change in the statement is likely. In recent statements, the front-loading has been explained by PEPP purchases at “a significantly higher pace” than the first months of the year. This is likely to be dropped and end the front-loading. No tapering, but a subtle shift nonetheless.

In other words, it could be an ECB meeting that is difficult to take a decisive conclusion from. EUR may well see increased volatility, but unless bond yields move sharply higher then we do not expect too much upside from EUR.


More of the same from the Bank of Canada

Meanwhile, the BoC announces its monetary policy decision on Wednesday. The BoC was the first major central bank to break ranks and begin to taper asset purchases in April. The economic rebound has been steady, but the vaccine roll-out has been excellent and the economic re-opening pathway continues.

As a result, there is little need to accelerate its tapering and a fairly unspectacular Bank of Canada meeting is expected this week.  



The key data is focused on US inflation, whilst the ECB is the central bank to watch. Higher than expected US CPI could cause another stir across markets. An upside surprise would elevate volatility across major forex pairs and commodities, whilst also being an excuse to take profits on equities. The ECB meeting is all about whether Christine Lagarde can navigate a tight line. She needs to prevent any undue taper tantrum to keep EUR steady.