• Fed statement to determine direction of the dollar
  • Pound may retrace as election gets closer
  • Canadian economy is expected to grow by 2%
  • Aussie dollar likely to slip as Chinese growth slows

The Fed will release their monetary policy statement this afternoon.  This is a big deal for currency watchers like myself.  The committee removed “patient” from their March statement, presumably to prepare the market for the first rate hike in over six years.  Most analysts expected this lift off to take place in June, but then the economic data turned markedly negative in all fronts.

This week’s survey of 100 economists by Bloomberg shows that 78% of them expect the rate hike will be delayed until September.  This call assumes that the economy will rebound strongly in the 2nd quarter after it shakes off the cold and adjusts to the strong dollar.

april-29 graoh

In any case, the dollar got crushed yesterday. Traders sold their dollars in anticipation that the Fed may have become unsure about the rebound.  They expect the Fed to signal in their statement that they’re considering a further delay.  But, I don’t see this happening today.  I’ve been trailing and listening to what Fed policy makers have been saying in public since the March meeting.  And, in my judgement, they have not wavered on their outlook that the economy will regain its footing in the coming months.

The Fed minutes will be released at 2pm EST.  Meanwhile, this morning’s 1st quarter Gross Domestic Product report missed badly.  The growth rate slowed to 0.2% from 2.2% in the previous quarter.  Expectedly, the dollar looks vulnerable for more slipping today.

EUR-USD is trading near an 8-week high ahead of the Fed statement release today.  The currency pair is likely to revert lower if the Fed indicates that it’s committed to hiking the rate in September.  Stay tuned.

GBP-USD spiked higher despite a disappointing UK 1st quarter Gross Domestic Product report yesterday.  I’ve been admiring the strength of the pound for the past few weeks because the general election is only eight days away.  I expect to see some pullback shortly.

USD-CAD set a 4-month low yesterday after the Canadian Finance Minister testified that he expects the growth to accelerate to 2% this year.  A weaker Canadian dollar seems to be helping many exporting sectors.

AUD-USD clocked a new 2-month high overnight, despite the market pricing in about 50% chance of the Reserve Bank cutting the rate next week. Having said that, I still believe the Aussie dollar will slip in the coming months as China continues to slow.

Have a great Wednesday.