Dollar Selloff Continues as Focus Shifts to FOMC Meeting
What’s been happening?
Pound Sterling – UK Markets
The British pound gathered strength and rose to its highest level in three weeks against the euro while rising to fresh 12-day highs vs the greenback. In its latest Consumer Confidence Survey, the GfK’s Client Strategy Director, Joe Staton, said consumer remained resilient despite Brexit uncertainty. “Despite political carry-on in the Westminster bubble with the clock ticking on Britain’s eventual departure from the EU, consumers are holding firm and remain unshaken by the daily headlines of turmoil and intrigue, although we remain in negative territory," Staton noted.
In the meantime, while speaking at a fintech conference in London, British finance minister Philip Hammond reiterated that parliament needed to make up its mind and come up with a Brexit deal, calling the Brexit uncertainty "bad for business." Earlier in the day, European Union (EU) Chief Brexit Negotiator Michel Barnier said that they were hoping to see the results of cross-party talks this week.
US Dollar – US Markets
The dollar continued to weaken against its rivals with the US Dollar Index dropping to a weekly low and posting losses for the third straight day as investors ignored the upbeat macroeconomic data releases and continued to price expectations of a dovish tone in tomorrow’s FOMC statement. The data published by the U.S. Burea of Labor Statistics on Tuesday showed that the employment cost index increased by 0.7% in the first quarter to match the market expectation. Other data revealed that pending home sales, which declined by 1% in February, increased by 1.1% on a monthly basis in March.
Furthermore, the Conference Board reported that the Consumer Confidence Index in April rose to 129.2 from 124.2 in March. “Overall, consumers expect the economy to continue growing at a solid pace into the summer months. These strong confidence levels should continue to support consumer spending in the near-term,” Lynn Franco, Senior Director of Economic Indicators at The Conference Board, said in the press release.
Meanwhile, President Trump, once again, voiced his criticism of the Federal Reserve’s policy outlook in a twitter thread, claiming that the economy had the potential to go up “like a rocket” if the Fed were to lower its policy rate.
Euro – European Markets
The shared currency advanced to a 7-day high vs the greenback but failed to gather strength against the pound sterling. In its flash estimate, the Eurostat said that the real GDP in the first quarter expanded by 0.4% on a quarterly basis to beat the market expectation of 0.3%. “Compared with the same quarter of the previous year, seasonally adjusted GDP rose by 1.2% in the euro area and by 1.5% in the EU28 in the first quarter of 2019, as in the previous quarter,” the Eurostat said in its publication. Other data showed that the unemployment rate in March ticked down to 7.7%.
Additionally, Destatis reported that the annual inflation in Germany, as measured by the Consumer Price Index (CPI), rose 2% in April after March’s 1.3% reading and beat the market expectation of 1.6% to provide additional support to the euro.
What’s coming up?
UK: The IHS Markit’s Manufacturing PMI and the BoE’s Consumer Credit report will be featured in the UK economic docket on Wednesday.
US: The ADP employment change will be the first data release from the U.S. ahead of the IHS Markit’s and the ISM’s April Manufacturing PMI reports. More importantly, the FOMC will announce its monetary policy decision and publish its policy statement. Although markets don’t expect any changes to the monetary policy, Chairman Powell’s press conference will be watched closely by the market participants.
EU: There won’t be any other macroeconomic data releases from the euro area on Wednesday.