Nothing to see here

To nobody’s surprise, America’s Federal Open Market Committee kept monetary policy unchanged with its announcement yesterday evening. Investors had been hoping against hope for something more proactively hawkish so they marked down the US dollar. It ended up as the day’s weakest performer, falling an average of 0.5%.

The statement itself did not differ markedly from the one put out after the March meeting. What had been “considerable risks to the economic outlook” became “risks to the economic outlook”. Such minutiae did not alter the perception that rates will remain low and the Fed will continue to buy assets through its QE programme for the foreseeable future. Whilst Jerome Powell acknowledged in his press conference that some financial markets are “a bit frothy”, he insisted that this had little to do with Fed policy.

The bottom line was that the Fed will not tighten monetary policy until it sees “substantial further progress” towards its goals for the economy; sustainable 2% inflation and full employment. Even though the Fed is more upbeat about the economy, it sees the current upswing in inflation as “transitory”, and not yet enough to prompt a tapering of the bond-buying process. The dollar reacted badly to that confirmation, losing a swift half-cent to sterling and going on to lose a net three quarters of a cent.

Taste the difference

Canada’s dollar continued to widen the gap with the USD, which had begun to open last week after the Bank of Canada announced a tapering of its bond-buying QE scheme. The Loonie took second place behind the oil-assisted Norwegian krone. In the last week it has strengthened by 1.6% against the Greenback.

The CAD had already been on the rise ahead of the FOMC announcement, helped by a strong set of retail sales data. February’s 4.8% monthly increase in overall sales was matched by a similar rise in sales ex-autos, and both numbers were well ahead of forecast.

Balance of trade figures from the United States and New Zealand had no effect on exchange rates. Neither did an upbeat ANZ Business Outlook, which showed business confidence jumping six percentage points to -2%.

Inflation all around

Ahead of the weekend there will be half a dozen consumer price index announcements from Europe and the States. The only UK ecostat in the mix is Nationwide’s house price index, which is due on Friday morning.

Although theoretically important for their influence on monetary policy and interest rates, the inflation figures arriving over the next 36 hours will have little practical impact. Those from EU member states are unlikely to take Eurozone inflation anywhere near the 2% sought by the European Central Bank. Likewise, the US personal spending and consumption numbers have been invalidated by Thursday’s Fed announcement.

This morning the European Commission presents its five measures of business and consumer confidence. US jobless claims, Q1 GDP and pending home sales appear after lunch. NZ consumer confidence tonight is followed by two of the Chines PMIs. Friday’s data covers Eurozone unemployment and GDP for Q1. The Chicago purchasing managers’ index and the Michigan consumer confidence measure come out on Friday afternoon.