US Fed’s Interest Rate Decision on Tab
Investors have shifted their attention to the upcoming interest rate decision by the US Federal Reserve (Fed) at the conclusion of its 2-day Federal Open Market Committee meeting later today. Even though the central bank is less likely to raise interest rates later today, market participants will look forward to additional insights by the Fed officials on the timing of future rate rises.
In the UK, the just published preliminary figures of domestic growth in the nation showed that the UK economy grew in line with the estimated pace in the first quarter. Later, investors will eye the release of
Confederation of British Industry’s (CBI) distributive trades survey scheduled in the UK. Earlier today, a survey by the GfK revealed that German consumer confidence unexpectedly inched up for May. Separate data showed that consumer confidence in Europe’s second largest economy came in below market estimates to remain unchanged in April.
Pound Sterling – UK Markets
The first estimate of the UK’s Q1 GDP advanced in line with estimates but at a slower pace compared to the fourth quarter of last year, amid fears that the upcoming Brexit referendum is affecting industry and investors. On the other hand, the CBI distributive trades index posted a strong turnaround in April. With the UK data left behind, the next major event for the Pound - US Dollar currency pair will be the conclusion of the two-day US Federal Reserve monetary policy meeting, later in the day.
Yesterday, the Pound surpassed the crucial 1.45 mark and hit a 12-week high against the greenback, aided by a broad based weakness in the US Dollar. Investors continued to bet more heavily that Britain would vote to stay in the European Union at the June referendum, after the US President, Barack Obama, threw his weight behind the "In" campaign. Meanwhile, Sterling mirrored its gains against the shared currency for the eighth consecutive week and rose to a six-week high level yesterday.
US Dollar – US Markets
Yesterday, the greenback extended its losses against the Euro and the Pound, after disappointing US economic data cemented expectations that the Fed would hold off on raising interest rates for a longer period. Data showed that the preliminary print of orders for long-lasting manufactured goods, rebounded less than anticipated in March, as demand for automobiles, computers and appliances plummeted. Consumers also appeared slightly pessimistic on the US economy’s short-term outlook as a gauge of consumer confidence for April posted a bigger than expected drop, which could potentially restrain household spending going ahead. This further corroborates the view painted by this month’s University of Michigan preliminary consumer sentiment index, which dipped to its lowest level since September last year.
Looking ahead, the Fed will conclude its two-day monetary policy meeting later today. Although, the central bank is widely expected to leave the benchmark interest rate unchanged, the focus rests squarely on the tone of the accompanying statement, which will be scrutinised to determine the timing of the next interest rate rise.
Euro – European Markets
The common currency is trading higher against the US Dollar and the Pound this morning after the release of a survey by the GfK which indicated that consumer confidence in the largest economy of the Euro zone unexpectedly improved for May, surging to its highest level in eight months. Prospects of higher wages and bigger pensions, along with expectations for an expansion of the domestic economy, bolstered the nation’s confidence level. Meanwhile, the confidence level in Germany also took its cue from recent policy decisions by the European Central Bank, as individuals in Germany were willing to continue their shopping spree. However, the Euro continued to trade stronger against its US currency counterpart, but lost momentum against the Sterling following the downbeat release of French consumer confidence. Data suggested that consumer confidence in France was steady in April while markets had anticipated a slight rise.
Going forward, investors will look forward to a number of sentiment data releases in the Euro region along with German consumer price inflation and unemployment rate data scheduled for release tomorrow.
Other Currencies – Highlights
The Aussie Dollar fell headlong against the greenback this morning, in the aftermath of the surprise dip in Australia’s first quarter consumer price index (CPI). This was the first time since 2009 that the inflation gauge fell to a negative level, thus tipping the scales in favour of an interest rate cut by the Reserve Bank of Australia (RBA) at its monetary policy meeting next month. Elsewhere in China, Australia’s largest trading partner, consumer sentiment eased slightly in April. On the other hand, profits earned by Chinese industrial firms advanced in March, mainly led by gains in chemical, agricultural and food processing companies. Next on the investors radar will be the US Fed’s interest rate decision, scheduled to be announced later in the day. As the Fed is widely expected to hold the key interest rate steady, focus will be on the tone of the accompanying policy statement.
Moving ahead, a raft of economic releases in Australia towards the end of this week will continue to attract market interest.