What happened to that March Rate Hike?
Overnight, the U.S. Dollar weakened versus other major currencies after the Federal Reserve kept interest rates unchanged at 0.25-0.50%. The Fed said it was “closely monitoring” global economic and financial developments, but maintained an otherwise upbeat view of the U.S. economy.
The possibility of a hike in March is not off the table entirely, but it seems unlikely as the committee has opened themselves to the possibility of a delay due to global risk. They were tactical enough to suggest that such a move is neither impossible or unlikely. They still intend to continue their tightening policy at a gradual pace, but without any specification of what gradual means. Overall, the statement has been interpreted as cautious and slightly dovish, but not substantially different from December’s stance.
Sterling weakened against the Greenback yesterday, peaking at 1.4352 by lunchtime before falling as Wall Street opened to 1.4234 by mid-afternoon. Nationwide House Prices printed lower than the expected 0.5% – the figures were 0.3% for January and 4.4% annually, down from 4.5%. Mortgage approvals also dropped slightly from 44.533K to 43.975k for December.
Nationwide Chief Economist Robert Gardiner has predicted that we can expect a modest price acceleration over the next few months, but a lack of construction would eventually increase this acceleration. Opinion polls suggest a close outcome on a Brexit referendum adding to uncertainty and potential capital outflows. As equity markets fell Sterling followed due to changes in risk appetite.
The UK Gross Domestic Product (GDP) report due today may renew the bearish sentiment surrounding Cable and could well cause a decline in GBPUSD. Though the Bank of England remains positive on the economy domestically, slower than expected recovery will encourage the central bank to retain its current policy throughout the year as it seems Mark Carney is still in no rush to lift the benchmark interest rate off of the record low. Q4 GDP is expected to print at 1.9% (year on year), down from a previous 2.1% and the lowest reading since Q1 2013.
Data to watch: 9.30am UK GDP, Quarter on Quarter & Year on Year. 1.30pm US Initial Jobless Claims, Continuing Jobless Claims, Durable Goods Orders incl & excl Transportation. 3pm US Pending Housing Sales.