FXTRADING Economic Data Summary (Asia-Pacific | 05/06)

The Reserve Bank of Australia is inclined to maintain higher interest rates for longer

At its latest meeting, the Reserve Bank of Australia raised the cash rate to 4.35% with an 8–1 vote. At the same time, it provided a clearer forward path, indicating that the policy rate could rise further to 4.7% by the end of 2026. This reflects not just a response to current inflation, but growing concern over the persistence of future inflation.

Since the second half of 2025, corporate price pressures have accelerated significantly. The combination of energy shocks and global supply chain disruptions has pushed costs higher. Firms are no longer absorbing these costs themselves, but are gradually passing them on to consumers, which is lifting short-term inflation expectations. The latest projections show headline inflation is expected to reach 4.8% by mid-2026, notably higher than the previous forecast of 4.2%, while core inflation is still projected to remain around 3.5% by the end of 2026. The return to target has been delayed to mid-2027. FXTRADING believes the RBA has shifted from cyclical tightening to a structural high-rate regime, with a significantly prolonged disinflation process and a higher interest rate baseline becoming the key theme ahead.

The Federal Reserve enters a monitoring phase

Remarks from New York Fed President John Williams leaned toward stabilizing market expectations. He emphasized that current policy is already well-positioned to deal with uncertainty and does not require further tightening. This suggests that, despite rising energy prices driven by Middle East tensions, the Fed is not rushing to counter risks with higher rates.

From a communication standpoint, the Fed now appears more inclined to scale back forward guidance. Uncertainty around the policy path has clearly increased, with risks stemming both from persistent inflation and slowing growth. In such an environment, offering premature direction could easily lead to market misinterpretation. The current assessment is that inflation is likely to remain around 3% this year, mainly influenced by tariffs and energy prices, before gradually easing. However, renewed upside risks from oil prices cannot be ruled out. FXTRADING believes the Fed is more likely to stay on hold in the near term, shifting its focus from directional decisions to risk management, with limited room for further hikes unless inflation clearly spirals out of control.

UK manufacturing rebounds but cost pressures intensify

UK manufacturing showed a notable recovery in April, with the PMI final reading rising to 53.7, the highest level since May 2022. Compared with Marchs weakness, this rebound was driven by improvements in output, new orders, and employment, with payrolls expanding for the first time in 18 months. This indicates a genuine short-term pickup in demand and a faster pace of production among firms.

However, disruptions linked to Middle East tensions have constrained key shipping routes, tightening supply chains once again. Delivery times have lengthened at the fastest pace in nearly four years, while input cost inflation has surged to near four-year highs. More importantly, part of the current output growth is driven by inventory-building rather than end-demand strength. Once this pre-emptive stocking fades, growth could slow significantly. FXTRADING believes the rebound in UK manufacturing is more of a temporary repair phase, with rising cost pressures and front-loaded demand creating risks of weaker momentum ahead.

The eurozone faces dual pressure from higher inflation and slower growth

According to the European Central Banks latest survey, inflation expectations have been revised upward. HICP inflation for 2026 was raised from 1.8% to 2.7%, for 2027 from 2.0% to 2.1%, while 2028 remains at 2.0%. Core inflation has also been revised up to 2.2%, suggesting that price pressures are spreading beyond energy into broader sectors.

At the same time, GDP growth projections have been revised lower, with 2026 downgraded from 1.2% to 1.0% and 2027 from 1.4% to 1.3%. The primary drag remains the cost shock from rising energy prices. The labor market has stayed relatively stable, with the unemployment rate projected at 6.3% in 2026 and gradually declining to 6.1% by 2028. However, wage growth forecasts have been revised higher, reaching 3.3% in 2026 and 3.1% in 2027, indicating that cost-side pressures may persist and further reinforce inflation stickiness. FXTRADING believes the eurozone is entering a classic combination of weak growth and high inflation, significantly constraining policy flexibility and setting the stage for a more challenging balancing act ahead.