In a song that remains the same type of market, cross-market volatility continues to take a vacation as investors cozy up to the idea of benign US inflation data later this week.

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This sunny outlook has nudged the dollar down a tad, while the Japanese yen remains weak and shaky. Expect more of this cheerful monotony today, with everyone’s eyes glued to US consumer confidence and eurozone inflation expectations.

Despite short-dated US rates holding their ground, the dollar is on a slow slide. The culprit? A spell of low cross-market volatility and a merry chase for risk. Investors are again banking on a soft US landing, pinning their hopes on Friday's release of April's core PCE inflation data. With April’s CPI and PPI figures already in the mix, consensus is crossing its fingers for a mild 0.2% month-on-month increase. If this pans out, it could revive dreams of a September Federal Reserve rate cut, now given a 44% chance, and spell more bad news for the dollar. In short, there's a glimmer of hope in the Fed’s favourite inflation measure.

But beware, the macro narrative is as fickle as the weather. Just last week, whispers of a slowdown were all the rage after a string of disappointing top-tier releases. Then, on May 23, the mood flipped to “no landing” mode following upbeat services sector activity and a drop in jobless claims for the NFP survey week. As the 2s10s inversion approaches its second anniversary, we’re in uncharted territory. Your guess is as good as anyone’s. Where do we go from here?

With key markets like the US and UK on holiday yesterday, attention shifted to other corners of the world. The Bank of Japan (BOJ) and the European Central Bank (ECB) took the spotlight, and their officials made waves. At the BOJ’s annual international conference, Governor Ueda promised a cautious approach as the bank inches away from zero-inflation expectations. Meanwhile, Deputy Governor Uchida played the enigmatic card, declaring that “this time is different” as Japan inches towards ending deflation, though challenges remain in anchoring inflation expectations at 2%. He pointed out that deflation is not just an economic issue but a “social norm,” poised to change as labor shortages push employers to hike wages.

Over at the ECB, Chief Economist Philip Lane hinted that rate cuts could start in June but emphasized the need for a restrictive stance throughout the year. This begs the question: what exactly does "restrictive" mean? The long-term neutral rate is still a riddle wrapped in a mystery, pondered by central banks globally, including the Fed.

Overall, the markets enjoyed a calm spell, with better risk sentiment spilling over into the FX markets, giving the US dollar a gentle push downwards. So, sit back, relax, and enjoy the show as the market narrative twists and turns ahead of US PCE inflation data on Friday.

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