Fed to Keep Rates on Hold

Dollar strength and pound weakness continued yesterday. UK construction data, politics, Eurozone GDP, and the Fed are in focus today.

Previous Day's Market Highlights

It was another poor show for sterlingManufacturing PMI fell to 53.9, the lowest in 17 months, and prompted another decline in the pound. This added to a recent set of softer macroeconomic indicators, which have seen expectations of a May Bank rate hike fall to under 20% from 90% at the start of April. Sterling-euro dropped back below 1.14 and sterling-dollar retreated below 1.37, later dipping below 1.36 for the first time since 12 January.
 
Dollar strength saw euro-dollar fall below 1.20 for the first time since January. The Canadian dollar made gains as monthly GDP surprised to the upside at 0.4%, up from January’s 0.1% contraction, and as BoC Governor Poloz was positive on the outlook and said interest rates are headed higher, in a speech on household debt.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1330 1.1600 1.1323 2.39%
GBP/USD 1.3609 1.4376 1.3578 5.55%
EUR/USD 1.2011 1.2414 1.1981 3.49%
GBP/AUD 1.8118 1.8478 1.8102 2.03%
GBP/NZD 1.9376 1.9755 1.9171 2.96%
GBP/CAD 1.7448 1.8095 1.7432 3.66%

Today's Market Highlights

The UK releases Construction PMI today (09:30 BST). Another disappointing figure could add to the pound’s weaker position this week, while a rebound after last month’s drop could provide some limited support. Typically, the construction print has the most limited market impact of the three PMIs, but greater attention could be paid to the release after slower Q1 economic growth was attributed in part to a decline in construction. Politics remains a downside risk as the government faces divisions over the UK’s post Brexit customs relationship with the EU.
 
Preliminary figures are forecast to show that economic growth in the Eurozone slowed to 0.4% in Q1 from 0.6% in Q4 (10:00). This would mark a departure from consistent quarterly growth of 0.6% in 2017 and the slowest growth since Q4 2016. As a result, the euro could weaken.
 
The Fed is expected to keep interest rates on hold tonight (19:00) at a target range of 1.50%-1.75%. With three hikes already projected by the Fed and priced in by markets, there may be relatively limited dollar movement tonight given a likely lack of surprises. What will be key is whether there are any signals that more Fed members see a building case for an additional—fourth—hike this year. If there are any, the dollar could strengthen.

Today's Economic Calendar

Time Currency Release Consensus Previous
09:30 GBP Markit Construction PMI (Apr) 50.5 47.0
10:00 EUR Preliminary GDP s.a. QoQ (Q1) 0.4% 0.6%
10:00 EUR Preliminary GDP s.a. YoY (Q1) 2.5% 2.7%
10:00 EUR Unemployment Rate (Mar) 8.5% 8.5%
13:15 USD ADP Employment Change (Apr) 200K 241K
19:00 USD Fed Interest Rate Decision 1.75% 1.75%
19:00 USD Fed's Monetary Policy Statement
02:30 AUD Trade Balance (Mar) 500M 825M

Caxton