• Dollar rallies as both gold and bitcoin fall

• Early UK elections called after mixed UK CPI report

• EZ PMIs unlikely to stop the ECB from cutting rates in June

The Fed minutes showed a much more hawkish discussion at the May 1 meeting than originally portrayed by Chairman Powell. In particular, the comment about the willingness of various participants to tighten policy further should risks to the inflation outlook materialize, contradicts Powell’s assurance that rate hikes are unlikely.

Fed minutes showed a much more hawkish discussion

The US dollar managed to rally against its main counterparts, especially as the Fedspeak has been greatly reduced as only Fed's Bostic is scheduled to be on the wires again today. He is unlikely to diverge much from his recent commentary, provided that the jobless claims and preliminary PMI surveys published later today do not hold any surprises.

With the Bundesbank mentioning yesterday that the German economy is expected to grow again in the second quarter of 2024, and reminding the market of the acute economic divergence between the US and the euro area, the market is counting down to the June ECB meeting.

The rhetoric from ECB members clearly points to a 25bps rate cut in June

The rhetoric from ECB members clearly points to a 25bps rate cut in June with the market currently assigning an 89% probability to this move. However, the hawks are desperately trying to stop the market from discounting successive rate cuts until year-end. Today’s stronger preliminary PMI surveys for May are unlikely to change the ECB's short-term outlook but could be used as an argument by the hawks for maintaining the current meeting-by-meeting approach.

Judging from yesterday’s developments, the markets were not the only ones expecting the important April inflation report. UK Prime Minister Sunak took advantage of the drop in the headline CPI to announce early elections on July 4. Elections in the UK are held on a Thursday and this time around they will coincide with the Independence Day celebrations across the pond. Interestingly, it will be the first general elections held during July since 1945, when Churchill’s Conservative party suffered a significant defeat.

It will be the first general elections held during July since 1945, when Churchill’s Conservative party suffered a significant defeat.

Over the next 45 days the market will try to digest the direction of the next government. The pound has managed to maintain its inflation-induced gains, but the focus is probably on the Bank of England. Chances of a rate cut at the June 20 meeting have probably dropped to zero as the BoE does not want to be seen influencing the electoral result. The August 1 gathering remains a "live" meeting especially as the new quarterly projections will also be published.

The renewed dollar strength and the lack of an acute reaction from Iran following Sunday’s helicopter accident pushed gold lower. Moves of $100 per trading session are not the norm for gold, possibly pointing to an overstretched market, with the next key support level being the 50-day simple moving average at the $2,306 area.

Similarly, the king of cryptos has been edging lower in the last two sessions, but it is maintaining most of its weekly gains. The upside has been partly triggered by renewed speculation that the US Securities and Exchange Commission (SEC) is about to approve the first spot ether Exchange Traded Fund (ETF).