Highlights of the week ended May 23

Source: Dukascopy Bank SA
US
The US economy's weakness in the beginning of the year persuaded most Fed policy makers that the economy would not show enough strength to justify hiking the benchmark interest rate in June. Yet, officials said that the slow start to the year was mostly triggered by temporary factors like harsh winter weather and disputes at West Coast ports. Central bankers expected a rebound in the coming months as the US Dollar weakened, supporting exports, according to the April policy meeting minutes. While the minutes showed a rate increase is not completely off the table, only a few Fed officials thought they would have enough confidence to begin raising interest rates at the June 16-17 meeting. Market participants are increasingly expecting the Fed to increase rates in September or beyond. Fed's minutes also showed that officials discussed whether the central bank should increase its 2% annual inflation target.

UK
The BoE predicted the UK economic growth to accelerate in the second quarter after a weak start to the year. The central bank estimated a quarterly growth in the three months through June to increase to 0.7%. Policy makers also expected slack in the economy is likely to fully eroded within a year, pointing to potential future price pressures that will spur policy tightening. BoE officials led by Governor Mark Carney said they see price-growth to resume towards the end of the year, fuelled by faster wage growth and a recovery in oil prices. Minutes of May's policy meeting showed the MPC expected annual inflation to accelerate "notably" towards the end of 2015 and return to its 2% goal by early 2017. 

Canada
Stephen Poloz, BoC Governor, said the Canadian economy is headed in the right direction, and sustained recovery supported by non-energy exports should start by midyear, underlying that the rebound from the 2008-09 recession "has been a long voyage, and it isn't over yet." However, Poloz reiterated that uneven economic performance of Canada's top trading partner, the US, is clouding the nation's economic growth outlook. Another uncertainty is whether the negative fallout from the precipitous drop in oil prices has dissipated. Given oil is Canada's top export, further oil-related weakness would affect the BoC's call for a partial bounce back in growth in the second quarter, Poloz said. The central bank's January's interest rate cut from 1.0% to 0.75% is seen working, as positive economic momentum continues to build. The Bank of Canada is scheduled to deliver its next rate decision on May 27, and analysts increasingly expect the central bank to leave rates on hold.

Japan
The Bank of Japan refrained from adding more monetary stimulus and expressed more upbeat view on the world's third largest economy, as a rebound in consumption boosted services sector's sentiment to the highest level in a year. The central bank said it will continue to expand the monetary base at an annual pace of 80 trillion yen. According to the BoJ, inflation is set to hit the 2% target in fiscal 2016, with tight labour-market conditions and the pressure created on wage growth helping to reach this target. The central bank's forecasts also assume a rise in global fuel prices from current levels. The BoJ bought itself some breathing space last month when it postponed the timing for hitting its inflation target. Yet, the decision also questions its credibility as it jarred with its commitment to reach the price target in "roughly two years" since stepping up stimulus in April 2013. 

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