All eyes will be on this afternoon’s Federal Reserve interest rate announcement at 2PM EST.
It is widely expected that the central bank will find the scope to raise its main interest rate by 25 basis points. The main focus will be on the Fed’s so-called “dot plot” for indication on how many interest rates policy makers expect this year. Some expect the central bank to indicate four hikes this year, up from three previously.
Chairman Jerome Powell will also give a press conference following the rate decision and traders will parse his words carefully. Currently, there is about a 40% chance of a fourth rate hike this year so we will look for changes on the Fed Futures and its effect on the greenback.
Fundamental data is light this morning but there is exciting news for North America. The “United” US, Mexico and Canadian bid to secure the 2026 World Cup was a success and beat out Morocco to host the world’s largest sporting event. While there won’t be an impact to the American economy for some time, the Tempus Trading desk is excited.
The common currency is surging in early trading despite more soft economic data. Eurozone industrial production fell 0.9% in April, worse than expected. However, March’s reading was revised slightly upwards.
The European Central Bank will hold their interest rate decision tomorrow and no change to rate is expected. However, market participants are eagerly awaiting news on when the central bank will end its quantitative-easing bond purchasing programing. The Euro found support last week on news that the ECB may be making an announcement, so failure by policy makers to address the unwinding would lead the Euro to spiral lower.
The British pound remains weak this morning despite the U.K. Prime Minister May dodging a bullet yesterday. May defeated two different parliamentary votes that would have done damage to her Brexit legislation yesterday afternoon. Regardless, there was back-room dealing that generally confused the media as both pro-EU Labour and Conservative Brexiteers claimed a victory.
Nevertheless, there is lack of cohesiveness and with weakness across the economic spectrum; the overall situation does not give much in terms of adding value to Sterling. We foresee continuous pressure, especially if the Fed over here hikes.