US FOMC Removes “Patient” Phrase
Across the Atlantic, the Fed wound up its meeting yesterday with a post meeting policy statement that revealed the central bank had dropped its pledge to remain “patient” before raising interest rates. However, the US Dollar registered sharp losses against its major peers after the central bank lowered its 2015 projections for interest rates in the US.
Yesterday’s labour market data in the UK revealed signs of softness in wage growth. Sterling traders are likely to remain on the side lines today, amid no notable macro triggers on the domestic front. In a noteworthy development yesterday, the British Chancellor upgraded his projections on UK’s economy for 2015 and 2016 and expressed optimism about the nation’s fiscal health.
Pound Sterling – UK Markets
Sterling is trading on a firmer footing against the Euro this morning. Moving ahead, investors will eye February’s government expenditure data in the UK tomorrow, especially after George Osborne, hinted yesterday that public finances are in slightly better shape than previously estimated.
Yesterday, the Pound dropped below the 1.47 mark against the greenback following the release of the mostly downbeat labour market report in the UK. The print showed that wage earnings in the UK grew at a slower than expected pace and the nation’s jobless rate unexpectedly remained steady for the three months ended January, despite the number of job additions in the economy remaining firm for the quarter. However, Sterling reversed its early session losses and rallied against the greenback after the US FOMC downgraded its projections for interest rate increases during 2015. Separately, in a noteworthy development, the UK Chancellor upgraded the nation’s growth forecast to 2.5% from 2.4% for 2015 and to 2.3% from 2.2% for 2016 and projected inflation to fall to 0.2% going forward.
US Dollar – US Markets
The US Dollar nose-dived against its major peers yesterday after members of the FOMC unexpectedly lowered their projections for US interest-rate increases for 2015. While the FOMC dropped its pledge to be “patient” on when to begin raising rates as expected, it suggested that economic growth in the nation has moderated somewhat. The US Fed Chairperson, Janet Yellen, in particular, stated the Fed has not decided on when to increase interest rates and that the timing of any policy change would be data-dependent. Additionally, she noted that labour market conditions have improved and decline in energy prices have boosted household spending. She emphasised that the Fed would look for further improvement in the labour market for signs that the central bank’s inflation target could be achieved.
The greenback has edged slightly higher against its key peers this morning. Today’s Philadelphia Fed manufacturing survey for March will be eyed for further cues on growth prospects in the US. Previously released data on manufacturing activity, industrial production and factory orders have pointed to a modest economic activity in the US.
Euro – European Markets
The Euro rallied against the greenback in yesterday’s trading session, as investors shunned the greenback in the aftermath of the FOMC policy meeting. On the macro front, Euro zone’s trade surplus widened for January, from the previous year, as imports dropped annually for January while exports remained almost unchanged. The Euro has depreciated against the US Dollar considerably since the previous year and the slide has continued into 2015, following the launch of the ECB’s bond buying programme. However, yesterday’s data showed little evidence that the weakening Euro has provided a significant boost to exports. Going forward, investors would be keenly eyeing data to ascertain whether a weaker Euro is helping the region overcome its growth issues. In other economic news, data showed that on a monthly basis, construction output across the Euro zone expanded for January.
In today’s trading, the Euro surrendered a major portion of yesterday’s gains against the US Dollar. Moving ahead, market participants will keep a tab on the economic bulletin from the ECB and targeted longer-term refinancing operation data for further direction.
Other Currencies – Highlights
The Swiss Franc has recouped some of its early session losses against the US Dollar this morning, after the Swiss National Bank decided to keep its policy rate unchanged today. While it reiterated that the nation’s currency remains overvalued and should weaken over time, the SNB indicated that it would intervene in the foreign exchange market, as necessary. The SNB also slashed its growth and inflation forecasts and now expects growth in 2015 to be just under 1%, compared to December’s forecast of 2%. Its 2015 inflation forecast is revised lower by a percentage point to −1.1%. Inflation is now expected at –0.5% in 2016, which is 0.8 percentage points lower than the December forecast.
Additionally, the Swiss government cut its growth forecast for this year and the next and warned of further cuts if the appreciating Franc continues to hurt economic growth. SECO guided to a growth of 0.9% for the Swiss economy this year, down from its December estimate of 2.1%. It has raised its unemployment rate forecast to an average of 3.3% this year, up from its previous forecast of 3%.Meanwhile, Swiss trade surplus narrowed more than market expectations for February.