• US consumers still not spending additional income
  • Sterling becomes G10’s strongest performer
  • Euro higher after preliminary PMI
  • Canadian loonie is higher still

Yesterday’s Federal Reserve minutes were an exercise in disappointment. The Fed shrugged, the market shrugged and then everyone went back to work.

The minutes did highlight increasing concerns over the state of the US economy. There was no real surprise here; this tone was necessary to avoid any suggestion that the Federal Reserve was unwilling to see – or not accepting – the fragility of the US economic recovery. Q1 GDP data was poor and the bounce back into Q2 from weather related weakness has been less than encouraging. Some analysts are talking up the chances of a US recession in the first half of this year. In particular, the Federal Reserve has highlighted the lack of strength in consumption as a major concern.

US consumers still seem unwilling to spend the additional disposable income that lower energy and food prices have afforded them, instead saving for a rainy day. With poor consumption, we are not going to see inflation return to normal without an improvement in wages, which also looks unlikely in the short term.

The main headline that markets focused on is that the Fed sees a June rate rise as unlikely. I am pretty sure that the Federal Reserve still doesn’t have the foggiest idea as to when it will hike rates – but it’s looking less likely that it will occur this year. Fed futures contracts, market estimates of when rates may rise, are now pointing to January 2016 for the rate hike.

Dollar slackened in the aftermath. In the next 36 hours, three Fed speakers will have the chance to clarify things. Federal Reserve Vice Chair Stanley Fischer speaks at 2pm, San Francisco Fed Chair Williams at 7pm before Fed Chair Yellen gives a speech tomorrow at 1pm – all times Eastern. Obviously a more present view of the landscape is more useful than a stale one and I will be looking to see whether inflation is the focus ahead of tomorrow’s CPI announcement stateside.

GBP has continued its recent outperformance after retail sales smashed higher in April, rising 1.2%. The man in the street is finally starting to see wages increase in real terms and the stagnancy in inflation is allowing him to go out and shop. Clothes sales were the main driver, up 5.2% on the month, the highest since 2011 – a likely reaction to a week or so of good weather in April.

Euro is higher following decent preliminary PMIs from the French, German and Eurozone economies. All seem to be at a tipping point at the moment. Some analysts have been quick to call the recovery in the Eurozone but previous runs of positive data have been terminated rather quickly. Positive growth numbers from manufacturing and services sectors will go some way to counteracting the existential threat that the Greek situation poses.

EURUSD has given back most of its post-Fed gains this morning courtesy of another strong jobless claims number. The 4 week average of people claiming unemployment insurance hit its lowest level since 2000.

GBPUSD is nearly a percent higher following that retail sales announcement and has solidified sterling’s performance as the best currency in the G10 in the past month.

AUDUSD has continued to lose ground following the Fed minutes as the trend into high yielders has weakened again. Commodity prices are also relatively flat on the session

USDCAD is higher and the CAD cannot get a break higher on oil price gains. I think we would need to see a break higher for crude prices above $70 a barrel for the CAD to strengthen meaningfully.