US jobs report for April showed solid jobs growth of 211,000. Both the U3 and U6 unemployment rates fell to new cycle lows indicating less slack in the labour market.
That said, we think the FOMC members are concerned about the subdued wage growth, as it partly reflects lower inflation expectations. Thus (against consensus) we think a June Fed hike is a bit too soon and guess July is more likely.
Also, if the Fed hikes in June, it would indicate a hiking pace of four hikes per year (every other meeting), which is more than the Fed projected both in December and March (3 hikes per year).
Instead in June, we think the Fed wants to send up a trial balloon by announcing what conditions would trigger a change in its current reinvestment strategy.
Our Fed call coupled with euro area looking good cyclically, EU political risks (likely) subsiding (with a Macron win at least) and the ECB set to go a tad hawkish in June, suggest ranges in EUR/USD are now permanently higher. Still a clear risk of a break of 1.10 on Macron win relief.
To read the entire report Please click on the pdf File Below