The ECB is the next target after the Federal Reserve. The Chinese Caixin Manufacturing PMI and the Australian Trade Balance will be released during the Asian trading day, while New Zealand will announce Building Permits.
On this Thursday, May 4, this is what you need to know:
The Federal Reserve increased interest rates by 25 basis points, to a range of 5.00-5.25%, as was widely anticipated. The FOMC also eliminated forward guidance for future rate rises, but it did say that the timing of future rate adjustments would be data dependent. There is still a lean towards tightening policy. There was little effect on the currency market.
According to Societe Generale’s research team:
‘’The Federal Reserve’s December 2018 and March 2019 dot-plot guidance has been met with a Fed funds target range of 5.00-5.25%. The following stage is a pause. For the clock to hit zero, we need evidence that rent inflation pressures have abated and that employment growth has slowed.’’
The US dollar was weakened after Wall Street equities ended down and US bond rates fell further. Even though it hit its lowest level in a week and finished at approximately 101.35, the US Dollar Index (DXY) is still far above its previous lows. Meanwhile, the yield on 10-year US government bonds fell to a new one-month low of 3.36%.
On Thursday, the United States will report its weekly Jobless Claims and its quarterly Unit Labour Costs. Private sector payrolls increased by an unexpectedly large 296K in April, according to data released by ADP. Investors are waiting for Friday’s Nonfarm Payrolls report, so the market’s reaction to the news was modest.
The forthcoming ECB meeting is where all eyes are now fixed, with a rate rise of 25 basis points likely but a 50 basis point hike probable. The Euro might respond depending on the meeting’s conclusion. After the FOMC announcement, the EUR/USD climbed as high as 1.1100, only to retreat to 1.1050. There may not be much room for improvement, but the pair is still positive.
Preview from the European Central Bank: In Two of Three Cases, Lagarde Will Raise the Euro
The value of the British pound against the US dollar hit an intraday high not seen since June, surpassing 1.2600 before paring down somewhat. The odds favour a positive outcome.
For the second day running, USD/JPY fell further as lower US rates and the drop in asset prices on Wall Street weighed on the pair. It has dropped by almost 200 pips in the previous two days, reaching a three-day low of 134.82.
Despite a third consecutive day of gains, the AUD/USD pair was unable to sustain a break above 0.6700, suggesting that bullish breakout preparations are ongoing. Nonetheless, it has recovered considerably from its recent lows. On Thursday, we may expect the Caixin China Manufacturing PMI and the Australian trade statistics.
The New Zealand dollar/U.S. dollar exchange rate has risen to a two-week high of 0.6260. After favourable employment statistics was released in New Zealand, the Kiwi gained ground against the CAD and AUD. The Reserve Bank of New Zealand (RBNZ) is widely anticipated by the market to implement another rate hike at their upcoming meeting on May 24. The RBNZ said that the national financial system is prepared for increasing interest rates and global concerns in its Financial Stability Report.
The price of crude oil has fallen for a second time, this time by almost 4%. WTI closed at $68.00, which is its lowest closing since the middle of March. Gold climbed steadily, remaining over $2,000; it peaked at $2,036, with a high of approximately $2,050 on the horizon for the year. Silver also increased, but only little, to $25.50. On Wednesday, the Bitcoin to US Dollar exchange rate dropped by 1%, to $28,350.
