• Fed outlook unclear
  • USD firms… for now
  • UK GDP disappoints
  • Oil producers meet in Vienna

The Fed minutes yesterday afternoon confirmed a June hike, but struck a cautious note in the outlook moving forward. Despite mentioning multiple times that the Q1 weakness was likely due to ‘transitory factors’, FOMC members took the wait-and-see approach to confirm that this weakness has subsided. Risks for a second hike after June are now skewed to the downside which also pulled the USD lower yesterday.

The dollar has stabilized as both initial and continuing jobless claims came in lower than expected, but tomorrow should be far more telling for our data-dependent Fed. US GDP and durable goods orders will lead the hard data, shedding light on overall growth and the outlook for manufacturing. A final reading of consumer sentiment from the University of Michigan’s monthly survey will look to confirm that consumer confidence rose to 97.7 in May which would mark the third straight month of gains for the index.

Sterling pared overnight gains after UK GDP growth was revised lower for Q1. At 0.2%, it was the weakest growth since Q1 2016 led by a fall in the services sector. This confirms the Bank of England’s fear that a weaker pound has driven up inflation and thus depressed wage growth, causing consumers to spend less. Elsewhere, British police continue to investigate a network behind the suicide bomber in Manchester, but are reportedly refusing to share information with the US according to Reuters. Furious with US media outlets for releasing information about the investigation before the details were confirmed, they called the leaks “disruptive” to the investigation. Prime Minister May has vowed to address the issue with Donald Trump when they convene in the upcoming NATO summit.

Oil backed down from a five-month high this morning as investors eye the OPEC meeting in Vienna. Consensus seems to be for a nine-month extension of production cuts with a rumored optional three-month extension should producers decide that it is needed. While asserting that the meeting won’t produce deeper cuts than the market expects, the Saudi Energy Minister called the nine-month extension “almost certain”, but why are they considering an optional three month tack-on? The Nigerian Oil Minister spoke with Bloomberg this morning and explained that those backing the three-month optionality will help with planning and give producers a longer term perspective.

EURUSD: Euro extended gains from yesterday afternoon as a cautious Fed outlook weighs on the USD.

GBPUSD: Sterling pared gains after GDP was revised lower, raising concerns that consumer spending may be tapering off.

AUDUSD: Aussie dollar flat against USD, erasing overnight gains as the dollar stabilized from declines yesterday afternoon.

USDCAD: Canadian dollar mixed against the greenback as investors wait to confirm the extension of OPEC’s production cuts.

USDJPY: The dollar clawed back to regain some footing against the yen, but failed to break above 112 despite higher risk appetite in global markets.