All Eyes on Fed’s Rate Decision and Statement
Today, market focus is on the outcome of the Federal Open Market Committee meeting. Although the Federal Reserve (Fed) is expected to retain its policy, investor focus will be on a press conference with the Chairwoman, Janet Yellen, who will likely shed a light on the US economy’s growth prospects and the perspective for a further increase in interest rates. Apart from the meeting, today’s economic calendar will offer an interesting set of US macro prints such as inflation data, industrial production and housing data.
In the UK, the just out labour market data showed a slight rise in wage growth and a drop in jobless claims for February. Market participants will also closely monitor the UK’s budget statement and latest economic forecasts by the Office for Budget Responsibility later today.
Pound Sterling – UK Markets
The just released UK jobs data, following two days of a quiet macroeconomic calendar, has brought in some good news for the UK economy. First out of the UK labour market was data showing another fall in jobless claims for February. This marked the third straight month when claims for unemployment benefits fell. Additionally, wage growth including bonus slightly picked up for the three months ending January and topped market expectations. Also, the ILO unemployment rate for the UK for the three month period through January was unchanged at its lowest rate for a decade. Today upbeat numbers from the UK have suggested that the labour market continued to perform well, at a time when markets were concerned about slowing growth in the UK economy.
However, the economic data sets were not enough for the Pound to be pushed higher against the greenback today. Sterling had drifted lower against the majors yesterday on renewed fears of the UK leaving the European Union. Meanwhile, it looks like Sterling investors are focused on today’s Budget announcement which is due in a few hours.
US Dollar – US Markets
The US Dollar has edged higher against most of the majors this morning as investors eagerly await the US Fed’s communication around the likely timing of the next interest rate rise, along with the pace of future policy tightening later today. With the US central bank expected to leave policy unchanged, the biggest highlight will be the Fed’s assessment of the US economy. Now that most financial markets have recovered from their lows and given a recent string of strong US economic data, the Fed is likely to be more optimistic than they were in January. Still, the path to a next rate increase is unlikely to be smooth. The US retail sales report, which was published yesterday, showed a slower than expected growth in retail spending for February. However, a sharp downward revision to January’s sales could reignite concerns about the economy’s growth prospects and thus force the Fed to signal a slower path of rate increase than the four 2016 rate rises envisioned in December.
Before the Fed announcement, a slew of US economic releases including February inflation numbers, housing and industrial production data are also due for release today.
Euro – European Markets
The shared currency has slipped lower against the US Dollar this morning, trading just above the 1.10 mark ahead of the outcome of the US Fed monetary policy meeting later today. With no major economic releases scheduled in the Euro zone for today’s trading session, direction in trading in the Euro - US Dollar currency pair will rely solely upon the US central bank's communication about the path of future interest rate rises, this will depend upon the global economic outlook as much as the domestic performance. Meanwhile, earlier today, the European Central Bank’s non-monetary policy meeting did not generate any major impact as it did not touch on important policy decisions such as quantitative easing. Going forward, investor focus will be on tomorrow’s final consumer prices data in the Euro zone which will confirm the region’s continued struggle with lower inflationary pressures.
Yesterday was again a very quiet day for European economic releases. The only data out in the Euro zone was the employment change data which printed better than expected for the final quarter of 2015.
Other Currencies – Highlights
The New Zealand Dollar – US Dollar currency pair is trading close to a two-week low reached overnight. But the pair, as of now, has partly recovered from its losses ahead of the US Fed’s monetary policy outcome later today. The Kiwi Dollar had yesterday briefly dipped below the 0.66 mark against the greenback for the first time in two weeks after international dairy prices fell at a fortnightly Global Dairy Trade auction in New Zealand, disappointing local currency traders. Later, the currency pair was pulled back from its lows after official data showed that New Zealand’s annual current account deficit narrowed more than estimates in the December quarter, as tourism jumped, helping the annual services surplus grow the most since the third quarter in 2004.
Later today, Kiwi currency traders will also keep a tab on New Zealand’s fourth quarter growth data, which is expected to show that the economy grew at a slower pace from the previous quarter.