The Federal Reserve delivered a second rate hike this year and showed barely changed economic forecasts.
The move is more or less in line with expectations, but the dollar slightly pares its recent fall. That’s because the Federal Reserve has barely changed its rate hike forecast and it still expects the target rate to be close to 3% in the long-term. On the other hand, the FED underlined that it’s monitoring inflation closely which is certainly a dovish sign. If inflation fails to accelerate before September, another rike hike won’t occur. As for now, however, the USD gains on an upbeat tone of the Yellen’s press conference and FED sticking to its rate hikes plan.
A slightly smaller than expected drawdown in the weekly inventory data from the US has been met with disdain from oil traders as Brent has dropped to lowest in weeks. The headline reading showed a drop of 1.7M barrels compared to forecasts of -2.4M and despite begin lower than last night’s API this was not enough to attract buyers into the market. There seemingly remains a glut of oil in the market and despite OPEC’s best efforts to curb production, inventory levels in the US are higher than recent years.
The US dollar has come under some selling pressure this afternoon after a disappointing set of economic data releases from across the Atlantic. Both the CPI and retail sales figures – as well as their core readings – came in below forecasts in what is all round a negative set of data for the US.
While the key day for GBP seems to be Thursday with the Bank of England decision and minutes preceded by retail sales report, today’s labour market report could be a concern for the UK central bank. The unemployment rate remained at 4.6% in April and a number of jobless claims rose by less than in April (7.3k vs 22k) but that’s a sole good news. We saw a slower 3-month employment gain in April – there were 109k new jobs rather than 125k expected and 122k previously and more than anything the data on wages was a shocking disappointment showing a slowdown to 1.7% y/y (ex-bonuses) from originally reported 2.1% in March which has been now revised to 1.8%. That shows why an uptick in inflation (released yesterday) is not a good news for the pound – real wages turn negative and that’s a very worrying sign for future consumption, a factor that the Bank of England will undoubtedly consider. The Bank’s decision and minutes will be released tomorrow at noon BST.
Monthly data from the Chinese economy showed a continuation of previous trends with output rising by 6.5%, investments up by 8.6% and sales increasing by 10.7% y/y in nominal terms in May. That’s all close to readings from April and market expectations and a sign that – for as long as the data can be seen credible – the economy keeps doing relatively well despite some concerning signs from business surveys (where industrial PMIs came down close to contraction territory).
In the upcoming hours it’s worth looking at the GDP