This week we adjusted our Fed call and expect the next policy changes to be hikes rather than cuts, see Fed update. We look for 25bp rate hikes in December 2026 and March 2027. Previously, we expected the Fed to cut rates down to 3.00-3.25%. US nominal growth outlook has improved more than we expected previously as AI driven investment demand continues to fuel both growth and increasingly also inflation. Importantly, our change in call has not been driven by just the war in Iran. Instead, we think that demand-factors are fuelling more structural inflation. US weekly ADP job data this week confirmed the robust trend in the labour market with an average weekly change over the past four weeks of 42.25k up from 33k last week. US PMI manufacturing was solid rising to 55.3 from 54.5 while service PMI declined further from 51.0 to 50.9.
In the euro zone PMIs disappointed with the composite PMI falling to from 48.8 to 47.5, the lowest level since October 2023. The main reason was the services sector that fell to 46.4, a five-year low. Manufacturing PMI also dropped but is still around the average level of the past year. China’s monthly data batch for April also showed the first signs of a negative impact from the Iran war with weakness in both retail sales and investments, see China Flash. It followed a strong start to the year with 5% growth in Q1. PPI inflation has increased sharply in recent months, so China has now become an inflationary force in the global economy after years of being a deflationary force.
The news rollercoaster on the Iran war continued over the past week. One day we are close to a deal; the next day we are not. We are still concerned that the closure of the Strait of Hormuz may drag out and keep oil prices elevated for longer. Bond markets cooled down after last week’s sharp rise that continued into the beginning of this week. The factors driving the increase are a cocktail of strong US data, high inflation prints and fiscal worries across countries, not least UK, US and Japan. The move in expectations for the Fed towards tightening has been a key driver in the US bond market and as we now look for two hikes by the Fed, we have lifted our projection for 10-year treasury yields to 5.0% in 12 months.
We also changed our view on the USD as we believe the USD debasement story is fading and renewed Fed tightening will support the USD. We now see EUR/USD heading lower to 1.12 in 12 months vs a rise to 1.22 previously. Stock markets had a bumpy ride over the past week swinging with the ebbs and flows in bond markets and news out of the Middle East. We are still constructive on stocks on the back of robust nominal growth and strong earnings.
In the coming week focus continues to be on the Middle East, but US spending and PCE inflation data Thursday will also be in the spotlight. Friday focus turns to the first inflation data for May from Germany, France and Spain.
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Editorial note: This recovered market brief has been cleaned and reclassified by Next Move Markets for educational market intelligence. It is not investment advice.
Next Move Markets desk view
For active traders, this brief should be read through the lens of currency markets rather than as a standalone headline. The key question is whether the theme behind Weekly Focus – The Fed on Course for Rate Hikes can influence positioning beyond the first reaction. That means watching central-bank expectations, yield differentials, dollar momentum and risk appetite together, not in isolation.
A richer trading read comes from separating the catalyst from confirmation. The catalyst explains why markets are paying attention; confirmation comes from price action, liquidity and cross-asset behavior after the headline is digested. If those signals do not align, traders should treat the move as fragile and keep risk tighter.
What traders should watch next
- Whether the move is confirmed by the U.S. dollar index and short-term rate expectations.
- How London and New York liquidity react once the initial headline risk is absorbed.
- Whether price action respects the latest support and resistance zones instead of fading immediately.
- Any follow-up comments from central-bank officials or data releases that change the rate path.
Risk context
This article is a market-intelligence brief, not a trade recommendation. Before acting on the theme, traders should define invalidation, position size and the time horizon of the setup. The same headline can support a short-term reaction and still fail as a multi-session trend if liquidity, policy expectations or broader sentiment move the other way.
Scenario map
The base case is that traders keep this theme on the radar while waiting for confirmation from central-bank expectations, yield differentials, dollar momentum and risk appetite. A stronger continuation scenario requires follow-through after the first reaction, preferably with related assets moving in the same direction. A failure scenario develops if the headline is quickly absorbed, volatility fades and price returns inside the previous range.
For currency markets, the most useful approach is to compare the article theme with live market behavior. If the market confirms the narrative, pullbacks can become more constructive. If the market rejects it, the headline becomes background noise rather than a trading driver.
Execution discipline
- Define the level first: traders should know where the idea is invalidated before thinking about upside or downside.
- Separate news from setup: Weekly Focus – The Fed on Course for Rate Hikes may explain attention, but entry quality still depends on timing, liquidity and risk/reward.
- Watch confirmation: a clean move usually appears across related markets, not only in one isolated instrument.
- Control exposure: if volatility expands, smaller position sizing can be more professional than chasing the headline.
Next Move Markets treats this kind of brief as a starting point for preparation: identify the driver, map the scenarios, then wait for the market to prove which path is actually being priced.
Next Move Markets desk view
For active traders, this brief should be read through the lens of currency markets rather than as a standalone headline. The key question is whether the theme behind Weekly Focus – The Fed on Course for Rate Hikes can influence positioning beyond the first reaction. That means watching central-bank expectations, yield differentials, dollar momentum and risk appetite together, not in isolation.
A richer trading read comes from separating the catalyst from confirmation. The catalyst explains why markets are paying attention; confirmation comes from price action, liquidity and cross-asset behavior after the headline is digested. If those signals do not align, traders should treat the move as fragile and keep risk tighter.
What traders should watch next
- Whether the move is confirmed by the U.S. dollar index and short-term rate expectations.
- How London and New York liquidity react once the initial headline risk is absorbed.
- Whether price action respects the latest support and resistance zones instead of fading immediately.
- Any follow-up comments from central-bank officials or data releases that change the rate path.
Risk context
This article is a market-intelligence brief, not a trade recommendation. Before acting on the theme, traders should define invalidation, position size and the time horizon of the setup. The same headline can support a short-term reaction and still fail as a multi-session trend if liquidity, policy expectations or broader sentiment move the other way.
Scenario map
The base case is that traders keep this theme on the radar while waiting for confirmation from central-bank expectations, yield differentials, dollar momentum and risk appetite. A stronger continuation scenario requires follow-through after the first reaction, preferably with related assets moving in the same direction. A failure scenario develops if the headline is quickly absorbed, volatility fades and price returns inside the previous range.
For currency markets, the most useful approach is to compare the article theme with live market behavior. If the market confirms the narrative, pullbacks can become more constructive. If the market rejects it, the headline becomes background noise rather than a trading driver.
Execution discipline
- Define the level first: traders should know where the idea is invalidated before thinking about upside or downside.
- Separate news from setup: Weekly Focus – The Fed on Course for Rate Hikes may explain attention, but entry quality still depends on timing, liquidity and risk/reward.
- Watch confirmation: a clean move usually appears across related markets, not only in one isolated instrument.
- Control exposure: if volatility expands, smaller position sizing can be more professional than chasing the headline.
Next Move Markets treats this kind of brief as a starting point for preparation: identify the driver, map the scenarios, then wait for the market to prove which path is actually being priced.
