It's Not for Tomorrow The information presented in this publication is provided purely for informational purposes and does not constitute investment advice, an offer to sell, or a solicitation to buy, and should not in any case serve as a basis or be considered an incentive to engage in any investment. The macro point The message is clear: the Fed's work is not done, and high rates will need to be maintained longer than expected. No reduction in interest rates in June... and maybe not even in September. What is certain is that the interest rate gap that will begin between the two sides of the Atlantic should be structurally favorable to the dollar. Several members of the Federal Reserve (Fed) spoke last week. The message is clear: inflation is still too high, and the central bank still has work to do. This implies that interest rates could remain high for some time. The scenario of a rate cut in June was already off the table for several weeks. But the possibility of a cut in September, which is still widely expected, is also fading. There are indeed a few positive signals. The San Francisco Fed announced last week that the famous extra Covid savings are finally spent. This could reduce demand-related inflation in the coming months. Additionally, consumer prices eased slightly in April, to 3.4% year-on-year. This is good news. But it's still a significant level, obviously. Even though the Fed has not indicated at what level of inflation it would feel confident enough to cut rates, one can assert with little risk that inflation above 3% is not compatible with a decrease in interest rates. Just a few weeks ago, the hypothesis of no rate cuts this year was considered fanciful by all market players. That is no longer the case. For the record, high inflation in the United States is a concern for the Fed in terms of its mandate. But inflation is especially a reflection of a booming economy, with consumption holding up despite headwinds, and unprecedented public support for investment. It is therefore not fundamentally bad inflation (economists often distinguish between good and bad inflation... the same distinction exists for debt). Last week, Washington also announced the amplification of protectionist measures taken by the Trump administration towards China. Tariffs will increase by 100% on electric vehicles, 25% on lithium-ion batteries, 50% on solar panels, and 50% on semiconductors by 2025. The list is not exhaustive. The forex market reacted little. However, this increase in tariffs could, on the margin, complicate the task of reducing inflation. Another issue is looming at this level. Commodities are experiencing a price surge. Cocoa is still close to its historical record, copper prices hit a record last week, and wheat prices have returned to their August 2023 levels, etc. In our view, the current strong rise in most commodities is a subject that has been completely neglected by the market. It's crucial because it could trigger a resurgence of inflation in the second half of the year. To be monitored. Moreover, while we all fantasize about a forthcoming 25 basis points rate cut by the European Central Bank (ECB) in June (this was confirmed again by the governor of the Banque de France), the central bank of Argentina has just lowered its rates by... 10% (from 50% to 40%). For the record, rates were at 126% in December 2023. One can criticize the style of the new Argentine president Milei... but it must be acknowledged that he is the first Argentine leader in over a decade to take the necessary and difficult economic measures to combat hyperinflation and get the country back on track. Finally, the ongoing normalization of the labor market across the Channel strengthens the possibility of a rate cut by the Bank of England (BoE) in June – at the same time as the Bank of Canada (BoC) and the ECB. The money market now expects a rate cut of 13.9 basis points in June, 25.7 basis points in August, and a total of 56.0 basis points in 2024. However, this should not have a significant impact on the EUR/GBP pair, which has been in a range for several quarters. It is one of the main forex pairs experiencing the lowest volatility. Technical point The most striking point in the forex market this May is the obvious failure of the Bank of Japan's (BoJ) interventions to curb the yen's decline. It's simply not working. According to unofficial estimates, the BoJ has spent no less than 60 billion dollars in FX intervention since the beginning of the month. This does not seem to convince speculators to stop selling the JPY in view of the latest CFTC report (equivalent to the US stock market regulator). From our point of view, only coordinated intervention with the US Treasury could reverse the downward trend on the JPY. This is, however, not on the agenda. We consider that the weak yen is a parameter that will remain unchanged this year…and possibly even in 2025. The support and resistance levels displayed below indicate respectively the low and high points within which the rates should move during the week.Weekly SupportsWeekly ResistancesS2S1R1R2EUR/USD1.06891.07451.09231.1010EUR/GBP0.83990.84230.86550.8698EUR/CHF0.95900.97230.99201.0010EUR/CAD1.44661.45441.48111.4890EUR/JPY164.55166.11170.01172.12 Announcements to follow The economic calendar is not dense this week. Pentecost Monday partly explains this. The only news concerns the United Kingdom with the release of consumer prices (previously at 3.2% in April year-on-year). Should the downward trend continue, market expectations for a rate cut in June could be reinforced. Below you will find the publications and events that are expected to have a major impact on currency price developments.DayTimeCountryIndicatorWhat to expect?22/05/202408:00UKConsumer Prices (April)Previous at 3.2% year-on-year23/05/202415:45USAPMI Services (May)Previous at 51.3 (in expansion).