Switzerland’s Consumer Price Index (CPI) showed a negative result, which was in line with expectations. The core inflation reading fell to 0.5% from 0.6%. Despite this, market expectations remain unchanged, with a 55 basis points (bps) cut expected by the end of the year and a 34% chance of a 50 bps cut at the Swiss National Bank (SNB) meeting next. In the Eurozone, CPI figures did not meet expectations. Core inflation decreased to 2.3% from 2.7%, and services inflation dropped to 3.2% from 4.0%. However, this has not impacted the market outlook, as a 25 bps cut from the European Central Bank (ECB) is expected this week, with the possibility of more cuts by year-end.

Central Bank Leaders

During the session, central bank leaders spoke, but they didn’t provide any new guidance. The Bank of Japan’s (BoJ) Ueda said that rate hikes will depend on certain inflation and trade conditions. Representatives from the Bank of England (BoE) believe that disinflation is likely to continue, with rates expected to drop due to growth risks that are not fully reflected in GDP data. In the U.S., attention shifts to Job Openings data, which is anticipated to decline to 7.100 million from 7.192 million. This change is not expected to significantly impact markets, given that Jobless Claims and Non-Farm Payroll (NFP) reports are expected soon. Recent figures show a consistent trend: inflation is decreasing in many developed economies, and central banks are monitoring it closely. In Switzerland, both headline and core inflation have declined, matching earlier estimates. Money markets suggest traders expect continued easing, with a firm consensus for a total of 55 bps in rate cuts by year-end. This indicates that market participants are focusing more on broader disinflation trends rather than short-term fluctuations. In the Euro area, CPI data surprises support those anticipating quicker monetary easing. The reduction in services inflation is especially noteworthy. This measure is often used to gauge long-term inflation pressures, as it is less influenced by energy prices or seasonal changes. The drop from 4.0% to 3.2% indicates that wage pressures and internal demand are not as strong as previously feared. The expected rate cut in June seems more like the start of a series of actions rather than a one-time event, as swap markets are pricing in additional cuts for later in the year.

Policy Outlook

BoJ’s Ueda maintained a cautious tone, emphasizing that policymakers are willing to wait for data to provide clarity, especially regarding wages and external demand. His remarks aligned with previous statements, indicating no immediate action is expected. In the UK, Monetary Policy Committee members were clearer, mentioning that weakening domestic output and underlying issues in GDP are hard to ignore. Their perspective suggests that rates are currently too high for the prevailing conditions and may need to be lowered. This viewpoint is based not only on GDP but also on demand indicators and inflation expectations, both of which have softened recently. In the U.S., the upcoming job openings data will complete the labor market picture, but market experts don’t expect significant movement from this report alone, as the numbers have been gradually declining. More focus is on upcoming jobless claims and employment data, which carry more future implications. If job growth continues to slow or fails to pick up, it will have a more direct impact on market pricing. Traders focused on volatility and rate decisions should pay more attention to the overall sentiment in central bank discussions, especially regarding growth. Inflation is weakening across the board, but it’s the recognition of slowing growth that will shift monetary easing from a mere expectation to an urgent necessity. This change in sentiment can be more impactful than a single month’s data and often occurs quietly. Positioning before central bank meetings should reflect this shift. We believe that the cautious stance in recent sessions indicates that many traders are still prepared for a slower pace of easing than the data suggests is prudent. Create your live VT Markets account and start trading now.

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