- All waiting on the Fed
- Fed will likely remain cautious
- Pound may likely correct lower
- Loonie rises as oil prices surge
Market participants remain on the sidelines yesterday ahead of tomorrow’s Fed policy meeting. And with so much money on the line, the market was a little bit edgy. Pulled down by the lingering bearish sentiment from Friday, the dollar grinded lower.
Bond and stock investors are hoping the Fed will take the rate hike off the table for now. The record low-interest rates make it easy to keep the current stock and bond rally going for a record 7th year. Of course, for dollar bulls like me, we want to see the Fed begin normalizing the interest rate in June. The higher rates will open the gates for trillions of foreign monies to pour into dollar assets in search of higher yields and in turn, set new multi-year highs.
With so much build up, I believe tomorrow’s Fed statement will likely disappoint all investors. Why? I expect the Fed to remain determined to normalize but cautious about taking the first step particularly since the 1st quarter growth rate – which will be released earlier in the day – is forecast to stall to 1% because of the harsh weather conditions and the strong dollar.
For the Fed to move on the rate hike, we need more positive data. And, I am hopeful that we will begin to see that later in the week. On Thursday, we have the April Personal Spending report. I’m betting on a strong pick up from the previous month. Then, we will see the ISM Manufacturing Report on Friday. And, I am hopeful to see that the manufacturing was able to make up the loss in exports with the surge in domestic demand. Stay tuned.
EUR-USD was volatile but ultimately settled higher this morning. Greek Prime Minister Tsipras reshuffled his debt negotiation team resulting in removing his controversial Finance Minister from the leadership role. The Greek bailout crisis looks set to roll on.
GBP-USD surged higher despite the 1st quarter Gross Domestic Product report missing market expectations. The quarterly growth rate slowed to 0.3% from the previous 0.6%. The currency pair is at a 7- week high ahead of the Fed decision tomorrow.
USD-CAD fell lower despite the absence of any data or news. A 20 percent surge in oil prices this month seems to have enlivened the loonie. At this point, I don’t see another rate cut by the central bank this year.
AUD-USD is surprisingly trading higher despite market expectations that the Reserve Bank will cut the rate on May 5th. This may be another reflection of dollar weakness.
Have a great Tuesday!