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All eyes will be on the US Federal Reserve meeting followed by the presser on Wednesday and the jobs data at the end of the week.
Markets have pushed the pricing for the first rate cut from the Federal Reserve back to December, which is weighing heavily on digital tokens.
This is a remarkable swing given it was only three months ago that the market was fully discounting 175 basis points (bps) of rate cuts this year starting at the March FOMC meeting.
Nonetheless, with inflation running far too hot, the economy growing robustly and adding jobs in significant numbers there is no prospect of the Fed easing monetary policy anytime soon, with the upcoming 1 May FOMC meeting being a complete non-event.
The significant roll back in Fed rate cut expectations is reflected in crypto pricing and demand as the top digital token is trading 15% below its record high hit in March.
Macro Data Calendar
Robust Data Forcing the Fed to Sound Less Dovish
At the March FOMC meeting, the Fed held that the most likely path forward involved three 25 bps interest rate cuts in 2024 and three more in 2025.
While they won't be updating these forecasts again until June, the fact that inflation continues to run too hot for comfort and that the economy is still growing strongly suggests a more cautious take on prospects for policy easing at Wednesday's FOMC press conference.
Core CPI has been at 0.4% month-on-month for three consecutive months, more than double the rate needed to bring inflation down to 2% year-on-year over time.
Meanwhile, the consumer continues to spend aggressively, and the economy has added 829,000 jobs in the first three months of the year.
This led Fed Chair Jerome Powell to state on 16 April that "recent data have clearly not given us greater confidence" that inflation is coming under control and "instead indicate that it's likely to take longer than expected to achieve that confidence."
He additionally warned that "if higher inflation does persist, we can maintain the current level of restriction for as long as needed."
Surveys still suggest a case can be made for a September rate cut.
Consequently, markets are now pricing next to no chance of action on 1 May, with only three bps of cuts priced by June, 20 bps by September, and 36 bps by December.
This is a remarkable swing given that it was only three months ago that the market fully discounted 150 bps of rate cuts this year, starting at the March FOMC meeting.
Still, some forecast the first move at the September FOMC meeting with two further cuts in November and December.
Business surveys suggest increasing caution about the economy's outlook, with employment components pointing to a pronounced slowing in hiring in coming months.
Investors also expect inflation to gradually converge on 2% as cooler economic activity and subdued labour cost growth help dampen price pressures, which are compounded by softening pricing power.
Nonetheless, there is little sign of this happening just yet, and the risk remains that the Fed will eventually bring interest rates to a more neutral level, more slowly and over a longer period than currently forecast.