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  • richard evans

USD higher as Fed's Powell expected to push back on rate cuts

Good morning

 

Welcome to May. It is a holiday in many parts of the world including much of Europe but not here in the UK.  We have to wait until Monday for our day off. 

 

USD was up a little yesterday as the employment cost index came in higher than expected, a weak Chicago PMI number prevented further USD gains initially but we have seen gradual USD strength overnight which has taken GBPUSD from a high yesterday of 1.2555 to 1.2470 and EURUSD from 1.0735 to 1.0650.  GBPEUR has held above 1.1700, stuck in a tight range between 1.1705-1.1715, as GBP and EUR have moved pretty much in unison to the USD.

 

USDJPY has drifted higher with the stronger USD, now 157.95 up to 157.55, while the market continues to look for any sign of official intervention from Japan.  Yen has certainly been calmer with none of the sharp spikes higher or lower, but it is an uneasy calm.  BoJ minutes due tonight may show to what extend the central bank were worried about Yen weakness.

 

FOMC rate announcement this evening, and anything other than unchanged rates would be a huge shock.  Remember it was only a few months ago that June was being lined up as the first month for a cut.  There is no chance of this now, that ECI number yesterday was just the latest indication that inflation and the labour market are showing no signs of abating.  Indeed, rate rise are probably more likely but we see only the tiniest of chances of this today. 

 

We will not get an updated set of forecasts or ‘dot plots’ from the Fed at this meeting so the key could be Powell and whether he says anything new about the path of rates through 2024, the real question is how hawkish he sounds.  He could push back on rate cuts, but he could go a stage further and mention the chance of a rate rise.  That would set USD alight, particularly given the potential for slightly less liquid markets due to those EU and Asian holidays.

 

There is no major data from Europe today given the holidays, but we do have some US numbers out before the FOMC announcement.  We’ll see the latest ADP and JOLTS employment numbers, while we will also see the latest manufacturing PMI from ISM.  There is a question over whether this will come in over 50 again, if it does it will be a good sign that this part of the US economy could have turned a corner and would likely offer a small degree of support to the USD. 

 

In sport, Ipswich overcame a determined Coventry to take them into second place in the Championship.  It now all comes down to Saturday to decide who takes that second automatic promotion place, Leeds or Ipswich. Ipswich have to draw or win to claim that important place, while Leeds need to win and hope for Ipswich to lose.  The team finishing third will go into the play-offs which ar exciting for the neutral but nerve-wracking for those involved. 

Elsewhere, Harry Kane’s Bayern Munich drew with Real Madrid in the first leg of their Champions leagues semi-final, while Borussia Dortmund take on PSG this evening. Could be an all-German final which will really put paid to England getting that fifth Champions leagues spot for next season, if it is not already out of reach now.

 

We’ve had a couple of days of decent enough weather, well its been dry and a bit sunny, but the forecast here suggests we’re in for thundery showers this afternoon.  Indeed once again I look ahead to the forecast for the next couple of weeks and every day bar one has a blob of rain showing.  It might only be a drizzle or a brief shower, but its certainly not what I’d be hoping or expecting.  I’ve got some workmen here painting my windows, not exactly the ideal weather for that either.

 

Have a great day

 

-  13.15 US ADP employment

-  14.30 CAD S&P manufacturing PMI

-  15.00 US manufacturing ISM, JOLTS job openings

-  19.00 FOMC rate announcement

-  19.30 FOMC press conference

-  00.50 BoJ minutes

-  02.30 AUS trade balance

 

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