US Fed ‘steady as she goes’ for now

Traders and investors abated their breath ahead of the testimony that US Federal Reserve Chairman Jerome Powell gave to the Joint Economic Committee yesterday. They needn’t have been so excited. In the end, Chairman Powell kept to his oft-repeated mantra of steady as she goes. The Fed is waiting for more assurance of economic recovery before hitting the button to tighten monetary policy. Everyone breathed again and not a lot happened to the US Dollar.

It seems likely it will be September and maybe even later in the year before the Fed starts prepping the market for changes and those changes probably won’t start until spring 2022. So the US Dollar will be driven by oil, recovery data, and politics in the interim. Enough with the déjà vu already.

So Tuesday was a day of little change. GBPUSD starts Wednesday morning around $1.3940, GBPEUR is still stuck below €1.17, and the EURUSD rate is still at the lower end of its recent range at $1.1925.

Wednesday is PMI central

The day ahead is awash with two things: purchasing managers indices (PMIs) from all over the northern hemisphere and speeches from central bankers. PMIs are indices based on surveys, where a 50 reading denotes no expectation of growth or contraction in the specified sector. Thankfully, recent readings have been in the 55-65 ranges overall. So optimism has returned to most sectors in most countries.

We expect today’s results to be in a similar vein for the EU, UK, and US data but the US service sector PMI is forecast to push up to 70 or maybe even better. That would nudge the Fed a little further towards monetary tightening, so the USD should have a positive day. The UK service and manufacturing PMIs are expected to be in the 65 region, so Sterling is also likely to be supported by the news.

Central bankers a-plenty today

The central bankers speaking today hail from the UK, EU, and the US. As always, all anyone wants to know is when interest rates and QE budgets are set to change.

Drop in Canadian retail sales forecast

In addition, we will see retail sales data from Canada. Sadly, the forecasts for the April data look set to reveal a contraction of circa 5%. The two previous months showed readings of more than 4% gains, so this will disappoint CAD traders. Look for a little weakness in the Canadian Dollar if the contraction is greater than 5%.

That is about all there is to report today. However, it is worth noting that the UK has formally entered into negotiations to join The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). They need to work on their branding but this trading bloc removes 95% of tariffs between its members. Those members are a diverse bunch: Mexico, Vietnam, Peru, Canada, Australia, New Zealand, Brunei, Chile, Malaysia, Japan, and Singapore. Membership of this club would be very promising for Britain’s future outside the EU and, with the UK involved, they could opt for a title like The Dirty Dozen or similar. They could already have grabbed Oceans Eleven…. or maybe that’s taken. Either way, CPTPP sounds like a medical procedure rather than a trading partnership.

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