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Fed Chairman resolute on rates

Sterling and the US dollar both found it tough going on Wednesday. They were on average 0.2% lower on the day in the penultimate place, saved from embarrassment by the Swiss franc, which fell 0.6%. The EUR, JPY and CAD had nothing to crow about; they were only fractionally ahead of the GBP and USD. For a second day the NZ dollar was in the first place.

Broadly, the mood was risk-on. The safe-havens were left behind by the Antipodean dollars and the Norwegian krone, which was helped by a 4% rise in oil prices. Risk appetite had received an early boost from the incredibly unprecedented strength of Australian consumer confidence. It received further reinforcement from the comments of Jerome Powell.

The Federal Reserve Chairman said in an interview that when the time comes to tighten monetary policy, the first move will not be to raise interest rates, it will be to taper the bond purchase programme. “That would in all likelihood be well before - well before - the time we consider raising interest rates.” Investors took it as reassurance that incredibly low US interest rates will continue through 2023.

 

Never enough

Not for the first time this week, investors chose to squeeze disappointment out of arguably decent economic data. The scapegoat this time was Australian employment. After moving steadily higher through the London session the AUD took a step back when the figures came out.

Total employment rose 71k, unemployment fell from 5.8% to 5.6% and the participation rate edged up to 66.3%; a record high. All of those numbers were better than expected, yet it looked as though investors were unhappy with some of the components: part-time employment went up by 92k while 21k full-time jobs disappeared. The AUD was a net 0.4% higher on the day, level with the NOK in the second place behind the NZD.

The Fed published its Beige Book, the economic summary which it prepares ahead of FOMC meetings. It noted that growth, hiring and inflation had all picked up, with national economic activity accelerating to “a moderate pace”.

 

US retail sales, EU inflation

The headline items ahead of the weekend are this afternoon’s US retail sales figures for March, tomorrow morning’s Q1 Chinese gross domestic product estimate and the Eurozone inflation numbers that follow. There will be considerable curiosity about today’s interest rate announcement from the Central Bank of Turkey.

The consensus is that US retail sales went up by 5.9% in March. However, there are some incredibly ambitious forecasts in certain quarters, ranging up to the Bank of America’s prediction of an 11% increase. Eurozone inflation is less contentious; investors expect no change to the provisional estimate of 1.3%. Other data along the way cover US industrial production, Canadian manufacturing sales, Australian new home sales and US consumer confidence.

After a busy few days the Fed Chairman has now disappeared from view for the next fortnight, ahead of the of the Federal Open Market Committee meeting on 27-28 April. The Turkish central bank is expected to leave its one-week repo rate unchanged at 19% this morning, but with a new governor, you never know.

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