Markets Week Ahead: Gold, EUR/USD, GBP/USD, USD/JPY; Eurozone Inflation, US Core PCE

Most Read: EUR/USD Trade Setup – Bullish Continuation Hinges on Resistance Breakout

The new week will start off slowly, as both the US and UK markets will be closed on Monday— the former for Memorial Day and the latter for a bank holiday. Holidays in these financial hubs mean lower trading volume, possibly leading to sluggish price action. But there’s a catch: thin liquidity can at times magnify price movements if unexpected news hits the wires, with fewer traders around to absorb buy and sell orders. That said, caution is warranted for those who still decide to trade on Monday.

As we progress through the week, we anticipate a relatively calm period with few high-impact events likely to spark significant volatility. Nonetheless, the landscape could change on Friday with the release of critical economic indicators. On one side of the Atlantic, Eurozone May CPI figures will be released. On the other side of the pond, we’ll get core price consumption expenditure data, the Federal Reserve’s most closely watched inflation gauge.

Curious about the U.S. dollar’s near-term prospects? Explore all the insights available in our quarterly forecast. Request your complimentary guide today!

Eurozone

The European Central Bank is likely to reduce borrowing costs from a record high of 4% at its upcoming June meeting. However, the extent of additional rate cuts will depend on the inflation outlook. In this sense, the May Flash CPI report will be crucial, offering valuable insights into recent price trends within the regional economy, which will play a pivotal role in guiding the monetary policy trajectory.

Analysts expect Eurozone inflation to rise to 2.5% y-o-y this month from 2.4% in April, with the core gauge anticipated to remain steady at 2.7%. The slight uptick in the headline metric may not deter the ECB from pulling the trigger next month, but an upside surprise may prompt the institution to adopt a more cautious approach to future easing. In light of these developments, euro FX pairs may be subject to heightened volatility heading into the weekend.

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US

Core PCE deflator data will also be released on Friday. Consensus estimates suggest a 0.3% increase in April, with the annual rate cooling to 2.7% from 2.8, marking a small but favorable directional move. A downward surprise could reignite optimism that the disinflationary trend, which began in late 2023 but stalled earlier this year, is back on track, strengthening the case for the FOMC to pivot to a looser stance at some point in the fall. This should be bearish for the U.S. dollar but positive for stocks and gold.

Conversely, if inflation numbers exceed forecasts, interest rate expectations could shift in a hawkish direction, delaying the Fed’s timeline for initiating rate cuts. In this scenario, November or December could become the new baseline for a potential move by the U.S. central bank. Such a development could propel bond yields and the greenback higher, creating a more challenging environment for equities and precious metals.

For an in-depth look at the variables that may impact financial markets in the coming week, explore the comprehensive forecasts and analysis offered by the DailyFX team. Our expert analysis may equip you to navigate the dynamic market environment and make smart trading decisions.

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