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FOMC doves fail to rock the boat

FOMC doves fail to rock the boat

The Federal Open Market Committee (FOMC) meeting minutes released yesterday were dovish, however there was little change in the markets given that there was nothing in the minutes that Yellen hadn’t mentioned in her recent congressional testimony.

Early in the day, GBPUSD hit the 1.4339 level on the back of the UK jobs and wage data, but the gains were short lived and the pair moved down to find support at 1.4235 after some positive US data. The Producer Price Index (PPI), which is a leading indicator of consumer price inflation, came in at 0.1% – above expectations of -0.2%. Also, industrial production for January came in at 0.9%, vs the expected 0.4%. The Dollar strength didn’t last long, however, as markets awaited the FOMC minutes and the pair traded around the 1.43 level for much of the day.

The dovish tone from the US FOMC minutes didn’t have a huge effect on EURUSD as expected.This was due to the price increase of crude oil driving EURUSD to the 1.1100 area. Today we look to the publication of European Central Bank (ECB) meeting minutes during European trading hours. The market will be looking for any suggestion of stimulus expansion in the fast-approaching March meeting. Any talk regarding the ‘Brexit’ could also play a significant role in the direction of the Euro.

Yesterday’s labour report from the ONS gave a mixed bag of results for the UK’s labour market in January. While jobless claims fell by 14.8K vs an expected 3.1K, average yearly earnings were still subdued at 1.9%, despite unemployment remaining at a decade-low 5.1%.

This seems to be a recurring theme for both the Bank of England (BoE) and the Fed, whereby they struggle to drum up wage growth despite the labour market being buoyant. As a result, Sterling followed the trend of the previous days against the Dollar yesterday with another move lower, leaving GBPUSD under pressure as it dropped below the 1.4300 threshold in the overnight market. No data out for the UK today so the Pound will be at the mercy of the Dollar and Euro drivers.

Data to watch: 12.30 ECB Monetary Policy Meeting Accounts. 1.30pm US Initial & Continuing Jobless Claims.

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