Fed rate rise expectations halved
UK labour market data came in slightly better than expected yesterday morning. The number of unemployed people in the UK fell by 18,000 in February – double the expected number. Average earnings beat expectations coming in at 2.1%, up from the previous month’s 1.9%, indicating that levels of pay in the UK are ticking upwards.
Despite the strong labour market data, the Pound touched a two-week low against the Dollar as the details of the UK’s 2016 budget highlighted growing concerns among investors over an economy which is facing the threat of June’s Brexit referendum. George Osborne announced in yesterday’s budget that the growth forecasts for the UK economy had been revised down to 2% from its previous forecast of 2.4%, and that previous spending targets would be missed. It’s not all bad news as duty on beer, spirits and fuel will be frozen. Cheers, George!
The Fed did not change US interest rates last night. The accompanying statement was not much different from January’s. One “dovish” change was that the phrase ‘closely monitoring global economic and financial developments’ was replaced with ‘global economic and financial developments continue to pose risks’.
Expectations of a June rate rise have dropped and the next one is now 52% likely in September after updated Rate Forecasts from Federal Open Market Committee (FOMC) members indicated that there will be only two rate rises this year, down from the originally proposed four. The Dollar had gained 2.25% on the Pound by midday yesterday since market open on Monday. The Fed’s dovish outlook weakened the Dollar by 1.5% by market open this morning.
GBPEUR opened this morning at 1.2660, significantly lower than yesterday’s open at 1.2734. The single currency is also showing strength against the Dollar, as EURUSD reached 1.1242 overnight. In amongst the busy data day today, year-on-year inflation rates are released for the Eurozone. This is expected to continue the trend at -0.2% and will only have a significant impact on the market if the results show a difference from the CPI Flash Estimate released two weeks ago. The Eurozone trade balance will also be released later today, but it may be overshadowed by the UK data to be released at midday.
Data to watch: 10am Euro CPI February year on year, Trade Balance. 12pm UK Interest Rate Decision & Minutes, Asset Purchase Facility (QE). 12.30pm US Initial Jobless Claims March, Philadelphia Fed Manufacturing March, CB Leading Indicator.