In the coming week, the Federal Reserve policy decision on Wednesday and Bank of England meeting on Thursday are the big events for investors.
This week, US consumer and prouder price inflation came in hotter than expected, but financial markets are continue to bet on a June start to the Fed's rate cutting, based on futures prices today.
The inflation numbers came after US growth and jobs data that also was "too hot" for the Federal Open Market Committee "to contemplate imminent interest rate cuts", said economist James Knightley at ING, noting that some aew still arguing the Fed has more work to do to control inflation.
"However, there is little prospect of action at next week’s meeting", Knightly said, based on Fed chair Jerome Powell recently telling Congress that both he and his colleagues "believe that our policy rate is likely at its peak for this tightening cycle".
Given that most of the market see a June cut at most likely, attention will focus on the 'dot plot' projections of FOMC members on Wednesday, with December's dot plot suggesting three 0.25-point rate cuts this year, which is roughly what the market now expects.
"The chances are that the Fed will stick to its recent message that rate cuts are coming, but the Fed needs to take its time," said market analyst Kathleen Brooks at XTB.
Brooks wonders if the dot plot could be revised down.
"Right now, the market is expecting the first rate cut to come in July, with no rate cuts currently expected for the first half of this year. If the Fed err on the cautious side next week, then rate cuts could be pushed back further than this summer."
BoE on Thursday
A day after it will be the turn of the BoE's monetary policy committee.
Most economists currently think the MPC will delay cutting until the third quarter, according to a Reuters poll today, although this is far from a dominant majority, with a large slice of around 40% predicting rates will be trimmed in the second quarter.
City expectations on the timing of the first rate cut from the Bank of England were hardening around June today after the latest GDP data showed the sickly UK economy only slowly recovering from the modest recession last year.
Earlier in the week we had jobs and wage figures that added to interest rate cut hopes, with wage growth slowing to raise MPC confidence that inflation pressures are fading.
Most analysts believe that the Bank’s MPC will not want to start cutting rates before the summer before being fully confident that inflation has been conquered.
Stefan Koopman at Rabobank says he, like most, expects the MPC will hold the rate at 5.25% next week and he is among those expecting to wait until September.
"We may see another three-way split in the vote," he says, with the current guidance suggesting the next move is likely to be a cut but "we don’t think that the MPC will drop a strong hint on the timing of that cut at this meeting."
He adds: "We think the Bank of England will trail behind the Fed and the ECB, with the first rate cut expected in September. This is still anticipated to occur well before core inflation is on track to reach 2%."