Fed holds and UK data bucks the trend
UK construction PMI bucked the recent data trend in strengthening to a five-month high of 52.5 in April. The data not only beat expectations but was a significant improvement on the 20-month low in the March figures. Better weather delivered a rebound in residential activity and output strengthened slightly in other sectors. Employment continued to increase, although confidence remained fragile. The Pound did benefit after the data, although with confidence weak, the rallies quickly attracted selling interest, flattening any momentum.
Brexit uncertainty persists with EU officials insisting on more progress by June amid further doubts whether any solution to the Irish border could be enacted to the satisfaction of the EU. Sterling retreated to lows below 1.3570 after the UK market shut but a Dollar retreat allowed the Pound back to near 1.3600 on Thursday. The Euro held below the 1.1350 level due to weak Sterling sentiment.
Yesterday, Dollar trading was largely dictated by the run-up to the interest rate decision but ADP private employment report added 204K new jobs in April which was down from the previous month but slightly above expectations.
The Federal Reserve (Fed), with a unilateral vote, made no changes to interest rates last night, holding rates at 1.50-1.75% which is what the market expected. The FOMC statement following mentioned investment was currently strong but there is a slowdown in consumer spending. Policymakers for the Fed claimed “mission accomplished” on their inflation target following data this week, showing current levels are just shy of 2% but declined to give any real indication of when the next interest rate rise will be.
The Dollar recovered the losses against the Pound that occurred in the run-up to the Fed policy meeting as strong expectations of a June rate hike continue. However, the Euro found support below 1.1950 due to the Dollar index dwindling slightly as the markets await Eurozone inflation data today. Markets are cautious ahead of Friday’s payrolls data.
Eurozone inflation has dipped lower again in recent months while other economic indicators have come off the boil too, pointing to slower growth ahead. Incidentally, Eurostat data released Wednesday showed GDP growth slowing to 0.4% in the first quarter, down from the 0.7% seen at the end of 2017.
Bundesbank chief Jens Weidmann stated policy normalisation should not be delayed too long and reiterated that expectations of a first rate hike around mid-2019 were not unrealistic. The Euro recovered slightly from fresh three-month lows near 1.1950 against the Dollar.
Data to Watch:
09:30 GBP Markit Services PMI (Apr)
10:00 EUR Consumer Price Index (YoY) (Apr)
10:00 EUR Consumer Price Index – Core (YoY) (Apr)
13:00 EUR ECB Vice President Vitor Constancio speech
13:30 USD Trade Balance (Mar)
13:30 USD Continuing Jobless Claims (Apr 20)
13:30 USD Initial Jobless Claims (Apr 27)
13:30 USD Nonfarm Productivity (Q1)
13:30 USD Unit Labor Costs (Q1)
13:30 EUR ECB Cœuré Speech
14:45 USD Markit Services PMI (Apr)
14:45 USD Markit PMI Composite (Apr)
15:00 USD ISM Non-Manufacturing PMI (Apr)
15:00 USD Factory Orders (MoM) (Mar)