Currency markets are seeing subdued price action this morning as participants stay sidelined in a catalyst-poor environment. Both the euro and pound are holding modest gains and the dollar is slightly weaker, with three-month implied volatility levels trading near the lowest levels in a year as monetary policy expectations crystallize and movement in the fixed income space slows to a crawl.

Commodity-linked and Antipodean currencies are weaker after traders responded to softer-than-expected Chinese economic activity data by marking down demand forecasts. Last night’s official data showed industrial output in the world’s second largest economy expanding 5.6 percent in April from a year earlier, well below the 10.9 percent consensus forecast. With profoundly-depressed base effects playing a role, retail sales jumped 18.4 percent, but missed expectations set closer to 21 percent. Fixed asset investment, key in understanding the country’s credit cycle, slowed to 4.7 percent. More worrisomely, the youth unemployment rate – not traditionally a focus for China watchers – leapt to 20.4 percent, suggesting that the services economy is failing to create opportunities for the millions of people who enter the labour force each year.

The British pound is trading slightly higher after a mixed jobs report led to a modest recalibration in expectations for additional monetary tightening from the Bank of England. According to data released by the Office for National Statistics this morning, the number of payrolled employees fell by 136,000, the jobless rate crept up to 3.9 percent, and vacancies fell for a tenth consecutive month in April. On the face of it, this would indicate that labour market slack is beginning to emerge, but average earnings excluding bonuses rose 6.7 percent year-over-year in the three months ending in March, up from the 6.6 percent pace set in February, and sufficient to suggest that wage pressures – which can feed into broader inflation expectations – remain elevated.

A busy day beckons. April’s retail sales and production numbers should provide insight into whether the powerful American consumption engine is beginning to slow, Canadian inflation data might help reinforce expectations for rate cuts in the latter half of the year, and a meeting between President Biden and Congressional leaders could trigger a reassessment of the odds on a default when the US hits its debt ceiling deadline in early June. A raft of Federal Reserve officials are also scheduled to speak, with Cleveland’s Mester kicking things off in a few minutes, followed by Vice Chair Barr’s House testimony, and appearances from New York’s Williams, Dallas’ Logan, Atlanta’s Bostic, and Chicago’s Goolsbee at conferences later in the day.