Sample Category Title

• The Bank of England on hold, as widely expected.
• A scenario framework was presented and suggests rate hikes would be the appropriate response, but the governor was very careful not to pre-commit to anything.
• We think that the most likely outcome going forward is no changes, but recognise risk is tilted towards one or two hikes.

The Bank of England (BoE) kept the Bank Rate unchanged at 3.75% as expected. The decision was taken with an 8-1 vote, with Chief Economist Pill voting for a hike. The BoE presented three scenarios in their monetary policy report, of which scenario A looks outdated, because energy prices are conditioned on mid-April futures curves.

Scenario A assumes the energy shock is short lived, while scenario B and C means more persistent costs and higher inflation in particularly scenario C, see BoE: Monetary Policy Report for details. Noticeably, none of the scenarios pencil in an outright recession. Different BoE models largely put appropriate policy responses of one/two/several hikes in the three different scenarios. Governor Bailey is putting most weight on scenario B along a small majority in the MPC which could quickly find itself split in the middle again. In the press conference, Baily was very careful not to attach any probabilities or specific policy responses to the scenarios, though. He noticed, however, that he does not think market pricing is off, so no push back on that front.

He emphasized that the decision was an "active hold" and not a "wait-and-see" decision. The BoE will not wait for second round effects to react, because by then, it is too late. Over the coming weeks, they will be particularly zoomed in on food prices, which have a large energy component. Pay settlement is set in the spring and is thus not likely to compensate consumers for lost purchasing power anytime soon.

BoE call. The meeting today and the balance of the MPC-members' individual statements did not convince us, that the BoE is on the brink of hiking rates. We think they are satisfied with the tighter financial conditions and are most likely to keep the Bank Rate at the current level, but we recognise the risk is tilted towards one or two hikes. Much hinges on the situation in the Gulf and the balance between UK activity and signs energy costs are spreading to core inflation.

Market reaction. The market responded to the decision by trading Gilt yields lower and backtracking a bit on the hawkish repricing. The June meeting is now priced close to 50-50 for a rate hike.

• Nonfarm payrolls enter spotlight after hawkish Fed.
• RBA prepares for its third straight interest rate hike.
• Canada employment report comes out alongside the NFP.
• Switzerland CPI and New Zealand jobs data also on tap.

Middle East tensions lift the Dollar and yields

The US dollar staged a recovery against its major peers this week, despite the ceasefire in the Middle East remaining in effect. The week began with a fresh wave of optimism as news hit the wires about Iran offering the US a proposal to end the conflict in the Middle East. However, the cheering was short-lived as, according to a US official, President Trump was unhappy with the proposition and remained willing to extend the blockade

This pushed the US dollar and Treasury yields higher as anxiety about the Strait of Hormuz remaining closed for longer intensified. Fears that this could lead to even stickier inflation down the road prompted market participants to scale back their rate cut bets, with Wednesday’s Fed decision putting to bed any dim hopes about a potential reduction towards the end of the year.

The Fed decided to refrain from pressing the rate-cut button, citing still-too-high inflation. The decision was very divided, with one member voting for a rate cut at this gathering, but three others voting to remove or delay any signals of future rate cuts. This prompted investors to get their rate cut bets off the table and even pencil in a more-than-50% chance of a rate hike by April 2027.

Nonfarm payrolls to reshape Fed rate speculation

With the next meeting scheduled for June, and most probably the first under Kevin Warsh’s lead, investors could turn the spotlight on Friday’s NFP data as they try to gauge how the Fed may proceed from here onwards. The ADP report on the private employment sector will be released on Wednesday.

Nonfarm payrolls rebounded strongly in March, rising 178k after shrinking 92k in February, while the unemployment rate ticked down to 4.3% from 4.4% and average hourly earnings slowed to 3.5% y/y from 3.8%. Another month of solid job gains, accompanied by accelerating wage growth, which could intensify inflation concerns, could add further credence to the idea that the Fed does not need to further lower interest rates this year.

The 4-week moving average of the ADP weekly employment change has increased notably in April compared to previous months, corroborating the notion that, at least, the private sector has enjoyed strong jobs growth, tilting the risk to the ADP monthly print and, thereby, Friday’s NFP to the upside.

RBA set to hike again, will it maintain a hawkish stance?

Following last week’s central bank barrage, on Tuesday, the torch will be passed to the Reserve Bank of Australia. At its latest gathering, on March 17, the Bank proceeded with its second consecutive quarter-point hike, citing elevated inflation and stronger-than-expected economic growth.

However, the decision was a close call, with 5 members voting in favor of a hike and 4 voting to hold. This makes next week’s decision even more interesting, despite market participants assigning a strong 75% chance that officials will pull the hiking trigger for a third straight time.

The reason for that may be the further acceleration in inflation, with all metrics moving further beyond the upper bound of the RBA’s 2-3% target range. In March, the headline CPI skyrocketed to 4.6% y/y from 3.7% in February, with the trimmed mean CPI remaining unchanged at 3.3%; and this with the job market remaining on a growth trajectory, adding 18k jobs in March and allowing the unemployment rate to rest at 4.3%.

A rate hike on its own is unlikely to shake the aussie much. Traders may need to see more members joining the hiking camp and receive stronger signals that the Bank remains willing to take interest rates higher if oil prices continue to pose a threat to inflation.

Canada and NZ jobs reports, Swiss CPI also in focus

Flying to Canada, the nation’s employment report will be released at the same time as the US jobs data. The Bank of Canada also held its monetary policy decision on Wednesday. Officials decided to keep the policy rate untouched and although they acknowledged inflation is still above their objective, they regarded it as temporary pressure from oil prices. Therefore, even if the Canadian report comes in strong, a less hawkish message from the BoC compared to the Fed is unlikely to allow the loonie to outperform the US dollar.

Elsewhere, Switzerland’s CPI will be released on Tuesday, where a further uptick driven by the Middle East-related energy crisis could reduce pressure for the SNB to adopt negative rates and may also delay a potential intervention in the FX market. That said, despite the latest dollar gains, the franc remains extremely strong, and should it resume its prevailing uptrend, deflation concerns may resurface and the SNB could remain vigilant and willing to step into the FX market should it be deemed necessary.

New Zealand’s employment report is also on Tuesday’s agenda, but later in the day, during the early Asian session. Although the RBNZ signaled a “wait and see” stance at its April gathering, the stubbornly high oil prices have prompted investors to pencil in a 35% chance of a quarter-point hike at the May decision and a strong jobs report could take that percentage higher, thereby boosting the kiwi.

Markets

The ECB received some last-minute input at the very moment policymakers were discussing the monetary course. Q1 GDP numbers showed the Euro area economy unexpectedly slowing to a 0.1% quarterly growth pace (0.8% y/y). Details are not available yet but its arguably not an ideal situation, particularly since Q1 only captures one month of the Iranian conflict and the ensuing energy price surge. The latter resulted in higher CPI with the April number, also on tap today, accelerating from 2.5% to 3% - the fastest pace since mid-2023. Energy prices soared from 5.1% to 10.9% (y/y) with monthly dynamics, although slowing from an eyepopping 7% in March, coming in at 3%. With oil prices (June contract) today temporarily hitting a post-war high of as much as $126 we could see further pressure in the month(s) ahead. Non-energy industrial goods inflation quickened too, from 0.5% to 0.8% to hit the highest in two years. Services inflation eased from 3.2% to 3%, allowing for a minor fall in core inflation to 2.2%. Accelerating actual headline inflation is to be combined with the April PMIs and a slew of other soft data that pointed at sharply intensifying price pressures going forward, and puts the ECB in a tough spot.

Frankfurt kept the policy rate unchanged at 2%. The status quo was unanimous but was discussed alongside the option of a rate hike, both at length and in depth. This suggests that there is appetite for such a move, though not enough (yet). The statement noted that incoming data has been broadly consistent with the outlook. However, upside inflation and downside growth risks have intensified. Going into the conflict, inflation was around 2% and the economy resilient. The ECB states that it is well positioned to navigate through this shock, of which the impact for the medium-term inflation outlook and economy depends on the intensity and duration and the scale of its indirect and second-round effects. The statement offered little clues for policy going forward hike and neither would Lagarde confirm (nor reject, though) market pricing for a June hike. She instead referred to the three-pronged reaction function specified at the ECB and its Watchers Conference. In terms of where the ECB is according to the three scenarios outlined in March, Lagarde only wanted to note that they are “certainly moving away” from the baseline without saying if that’s closer to the base or the adverse case. We’ll have to wait until June for that. Asked why the ECB is not acting to its baseline scenario, which embedded two rate hikes and sees inflation just barely easing back to 2%, Lagarde said that they are in a position to wait it out before acting immediately because they are not seeing second round effects so far. In addition, anticipative market positioning is doing some of the tightening work already. But at least Lagarde thinks she “knows which direction they are headed at”. The market reaction was an extremely muted one. A sudden intraday drop in oil prices in fact triggered the biggest (and only) move of the day, dragging European yields up to 10 bps lower at the front. EUR/USD is trading little changed around 1.17. The US dumped a batch of eco data in between the ECB announcement and press conference but triggered additional volatility. Q1 growth fell slightly short of expectations with 2% Q/Q annualized. Imports was a major drag though, subtracting 2.62% ppts, while all other major categories contributed: personal consumption added 1.08 ppts, investments 1.48 ppts and exports 1.32%. Quarterly PCE data surprised to the downside on a headline level (3.6% vs 3.9% and from 3.7%) but to the upside when looking at the core (4.3% vs 4.1% and from 2.7%), the latter being the fastest since Q1 2023.

The Bank of England today left its policy rate unchanged at 3.75% in 8-1 vote. Huw Pill preferred to raise the rate to 4%. Governor Bailey labeled the decision as an ‘active hold’. In its quarterly report the BoE replaced central forecasts by three scenarios with different paths for energy prices and potential second round effects. Even as the BoE sees inflation above current 3.3% for the remainder of this year, the MPC made a balanced assessment. There is a material risk of second round-effects which policy needs to lean against via higher interest rates. But at the same time, the bank also elaborated on a further loosening of labour market conditions, a weakening of the economy and a tightening of financial conditions since the start of the conflict. The BoE in this respect finds itself in a difficult position where it has to balance the cost of doing too much vs too little. The balanced approach (and an intraday decline in the oil price) caused markets to scale back expectations for a June BoE rate hike to about 65% from 80% yesterday evening. Gilt yields ease between 10 bps (2-y) and 5 bps (30-y). Sterling gains modestly (EUR/GBP 0.865).

• The United Arab Emirates exit from OPEC+ highlights growing internal tensions and weakens the cartel’s ability to coordinate supply
• Short term market impact remains limited due to supply disruptions linked to the blockade of the Strait of Hormuz
• In the medium term, the UAE’s spare capacity may increase global supply once logistical constraints ease
• Recent price declines in Brent crude oil likely reflect profit taking after a strong rally driven by geopolitical risk

A smaller coalition from eight to seven producers

The global oil market is entering a phase of growing institutional uncertainty, as the ability of OPEC+ to coordinate supply continues to weaken. A clear manifestation of this trend is the decision by the United Arab Emirates to leave both OPEC and OPEC+, effective May 1, 2026. As a result, only seven countries, down from the original eight that agreed in April 2023 to implement additional production cuts, will participate in the upcoming policy meeting.

Underlying tensions quotas compliance and strategic divergence

The UAE’s departure is not a sudden development but the outcome of prolonged internal tensions. Disagreements have centered on production levels and, crucially, on compliance with agreed quotas. The UAE repeatedly exceeded its production limits, undermining the credibility of the group’s supply management framework. At the same time, the country has been expanding its production capacity, putting it at odds with the restriction focused strategy led by key players such as Saudi Arabia.

These economic frictions have been compounded by geopolitical considerations. Amid escalating regional conflict and instability in the Gulf, Abu Dhabi has grown increasingly dissatisfied with the level of political and strategic support received from its neighbors. This has accelerated the shift toward a more independent energy policy focused on maximizing national output and flexibility.

Limited short term impact amid supply disruptions

Despite the significance of the UAE’s exit, its immediate impact on the oil market is limited. Production across the Gulf region is already well below capacity due to the blockade of the Strait of Hormuz, one of the most critical transit routes for global oil flows. In this context, physical export constraints outweigh formal production quotas, rendering OPEC+ decisions largely symbolic in the short term.

Although new quotas are likely to be announced at the routine meeting, their practical relevance remains minimal. The cartel continues to operate within a formal framework, but its ability to effectively control supply has been significantly diminished.

Medium term risks unconstrained capacity and market rebalancing

The implications of the UAE’s exit become more meaningful in a scenario where logistical constraints ease and export routes normalize. The UAE possesses substantial spare production capacity, estimated at around 700,000 - 800,000 barrels per day, which it can deploy without being bound by OPEC+ agreements. This creates the potential for a faster supply response and a shift in market balance once normal conditions resume.

Long term outlook rising competition and price volatility

Over the longer term, the erosion of quota discipline and the increasing number of producers operating outside coordinated frameworks could lead to a more competitive supply environment. This raises the likelihood of heightened price volatility and, in extreme scenarios, the risk of a price war among major oil exporters.

While the UAE’s withdrawal does not immediately alter global supply dynamics, it represents a significant structural development. It highlights the weakening cohesion within OPEC+ and signals a gradual transition from coordinated market management toward a more fragmented and competitive oil landscape.

Technical view on the oil market

Brent crude oil price (CFD), daily data, source: TradingView

Oil prices are declining today, which may be driven by news regarding the decision of the United Arab Emirates to leave OPEC+. The market appears to be reacting to the potential for increased supply in the medium term, as well as weakening cohesion within the cartel, both of which are putting short term downward pressure on prices. Currently, Brent crude oil is trading around 114 USD per barrel, while West Texas Intermediate stands near 106.5 USD.

At the same time, Brent crude oil prices have matched and even exceeded the highs seen at the beginning of the Middle East tensions. This could indicate that the market has entered a phase of profit taking, particularly among short term investors who entered positions during the recent upward momentum driven by geopolitical risk.

As a result, the current pullback does not necessarily signal a reversal of the broader trend, but rather a natural correction following a strong rally and a retest of previous highs.

The U.S. economy expanded by 2.0% quarter-on-quarter (q/q, annualized) in the first quarter – a touch weaker than the consensus forecast of 2.3% – and an acceleration from Q4-2025's 0.5%. Major contributors to last quarter's growth included investment, exports, consumer spending, and government outlays. Imports were a meaningful drag.

Consumer spending rose by 1.6% q/q, or a similar pace to Q4's1.9%. Goods spending was flat on the quarter, while services rose by a healthy 2.4%.

Business investment grew by 10.4% q/q, led by a sharp acceleration in equipment spending (+17.2%) and another solid gain in intellectual property products (+13.0%). Meanwhile, spending on structures (-6.7% q/q) declined for the nineth consecutive quarter. Residential investment (-8.0%) also declined sharply, amid a further softening in home sales and little growth in construction activity.

Government spending (+4.4%) rebounded following a sharp decline in Q4 due to the 43-day government shutdown.

International trade shaved 1.3 percentage points (pp) from growth, as surge in imports (+21.4%) was only partly offset by a solid gain in exports (12.9%). Most of the gain in imports was driven by a pick-up in goods, though services were also higher. Inventory investment added a modest 0.4 percentage points to Q1 GDP.

Final sales to private domestic purchasers, a better gauge of underlying demand as it includes only household consumption and fixed investment rose by a healthy 2.5%, an acceleration from Q4's gain of 1.8%.

Core PCE inflation rose 4.3% q/q annualized, up sharpy from Q4's 2.7% - marking the fastest quarterly gain since Q1-2023.

Key Implications

The U.S. economy remained resilient though the first three-months of the year, with growth rebounding after a sluggish end to 2025. In part, the uptick was driven by a rebound from Q4's sharp decline in federal outlays, stemming from the record-long government shutdown. Business investment remained a bright spot, with gains driven by further investments in AI and some broadening in capital expenditures to more traditional areas of investment.

Consumer spending was a soft spot in Q1. While some of the weakness can be chalked up to weather related effects, the March figures (also released this morning) also came in a bit softer than expected, suggesting the recent jump in gasoline prices is already having some impact on spending patterns. Higher tax refunds should offer some near-term cushion for households, which alongside continued investments in AI, is likely to keep the economy expanding at around a 2% pace in Q2.

Canadian GDP ticked higher by 0.2% month-on-month (m/m) in February, in line Statistics Canada's advanced guidance and market expectations.

Growth was not particularly broad based. Only 8 of 20 industries registered an increase on the month. Goods industries rose for a third consecutive month (+0.4% m/m), while the services sector ticked higher by 0.1% m/m.

The manufacturing sector (1.8% m/m) contributed most to goods-side growth with strong gains in both machinery and transportation subsectors. The mining/oil/gas sector (+0.4% m/m) also pitched into the headline gain. Meanwhile, the construction sector slipped after three consecutive monthly gains.

On the services side increases in the finance and insurance sector (+0.3% m/m), wholesale trade (0.9% m/m), and transportation and warehousing (1.2% m/m) were slightly offset by declines in the public sector aggregate (-0.3% m/m).

Advanced guidance calls for no growth in March, with further gains in wholesale and transportation sectors being offset by a pullback in retail trade and the mining, oil and gas sector.

Key Implications

Canada's economy looks to be off to a solid start in 2026 after GDP contracted in Q4-2025. With February's print and a flash estimate for March, Q1-2026 growth is tracking around 1.7%, broadly consistent with the Bank of Canada's recently updated economic projections and our own forecast.

How growth evolves beyond Q1 will matter more for the policy outlook than the near term momentum itself, as the Canadian economy faces significant cross currents – most notably elevated trade uncertainty and, more recently, spillovers from the ongoing Middle East conflict. The BoC has emphasized that these forces leave two sided risks to the outlook, and policy remains data dependent, with the Governing Council prepared to respond if growth or inflation deviates materially from expectations. That said, our base case remains that the Bank holds the policy rate steady for the remainder of the year.

Daily Pivots: (S1) 1.1650; (P) 1.1687; (R1) 1.1713; More….

Outlook is unchanged in EUR/USD and intraday bias stays neutral. Further rise will remain in favor as long as 1.1642 support holds. On the upside, sustained trading above 61.8% retracement of 1.2081 to 1.1408 at 1.1824 will pave the way to retest 1.2081 high. However, firm break of 1.1642 support will indicate the the rebound from 1.1408 has completed, and bring deeper decline back towards this low instead.

In the bigger picture, the strong support from 38.2% retracement of 1.0176 to 1.2081 at 1.1353 suggests that the pullback from 1.2081 is more likely a corrective move. Strong support was also found in 55 W EMA (now at 1.1530). Focus is back on 1.2 key cluster resistance level. Decisive break there will carry long term bullish implications. Nevertheless, break of 1.1408 support will revive the case of medium term bearish trend reversal.

Daily Pivots: (S1) 1.3446; (P) 1.3487; (R1) 1.3517; More...

Range trading continues in GBP/USD and intraday bias stays neutral. Further rise is still in favor with 1.3446 support intact. On the upside, firm break of 61.8% retracement of 1.3867 to 1.3158 at 1.3596 will pave the way to retest 1.3867 high. However, break of 1.3446 will turn bias back to the downside for deeper pullback.

In the bigger picture, current development suggests that price actions from 1.3867 are merely a corrective pattern within the broader up trend from 1.0351 (2022 low). With 1.3008 support intact, medium term bullishness is maintained and break of 1.3867 is back in favor for a later stage, towards 1.4248 key resistance (2021 high).

Daily Pivots: (S1) 0.7891; (P) 0.7908; (R1) 0.7933; More….

Intraday bias in USD/CHF stays neutral and outlook is unchanged. Further decline is expected as long as 0.7933 resistance holds. Break of 0.7830 will bring retest of 0.7774 support. Sustained break of 61.8% retracement of 0.7603 to 0.8041 at 0.7770 will pave the way to retest 0.7603 low. However, decisive break of 0.7933 will argue that fall from 0.8041 has completed as a corrective move. Further rise should then be seen through 0.8041 to resume the whole rebound from 0.7603.

In the bigger picture, rebound from 0.7603 medium term bottom is seen as correcting the fall from 0.9200 only. Rejection by 55 W EMA (now at 0.8053) will affirm this bearish case, and setup down trend resumption to 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382 at a later stage. Though, sustained break of 55 W EMA will suggest that it's probably correcting the larger scale down trend from 1.0146 (2022 high).