Russia investigation rumbles on and Fed holds the rates
On Wednesday, Attorney General William Barr was questioned in the Senate. The biggest development, other than some dramatic back and forth which raised more questions than it answered, was Barr’s refusal to testify in Congress to the Judiciary Committee – perhaps wary of the reception he will receive in the Democratic-led House. Congress is calling for access to the full report and accompanying files, following on from Special Counsel Robert Mueller’s frustration over the report summary and there may be more explosive revelations to come if Congress gets its wish to review the un-redacted report and accompanying files. If not, and Barr refuses to testify, he may be found in contempt of Congress.
With this political backdrop of tension and uncertainty, it’s no surprise that the Federal Reserve continued to hold interest rates despite positive economic figures. President Trump’s wish for a cut in interest rates was not granted by the Fed this month and the rate was held in the 2.25% - 2.5% range. Chairman Jerome Powell said that the president’s comments were not discussed in the meeting because the organisation does not sway to political pressure and looks only at the available data. While presidents have attempted to influence the Fed in the past, none have been so public in their approach. As well as taking to twitter, the president has been trying to appoint an ally on the Board of the Fed. However, the first withdrew after allegations of sexual harassment emerged and the second was found to owe $75,000 in taxes and held in contempt for failing to pay his ex-wife $300,000. Away from political machinations, the central bank noted that growth was continuing at a “solid rate”. GDP grew at 3.2% in the first three months of the year, which was stronger than expected. The dollar made gains against sterling and the euro in the wake of the decision, but both soon recovered after fell back again after investors reflected on the bigger picture.
Reasons to be cheerful
The Canadian dollar wavered ahead of its own central bank’s decision but made gains after the Bank of Canada’s Stephen Poloz left pessimism behind in favour of an improved second half of the year. Declining numbers have been putting pressure on the Loonie, which lost ground in April for the third month in a row. However, the Canadian dollar did climb against a weaker dollar and seemed boosted by the comments from the BoC’s Governor that there were reasons to be optimistic about the second half of the year. Together with a rise in oil prices, the Loonie managed to make small, sorely needed, gains.
It was May Day in Europe. Also known as Labour Day, this public holiday across much of the continent meant that there was little news from the continent. After so many reports of a slow-down across Europe, the news that Italy had edged out of recession came as a welcome relief. There was even more good news when economic growth for the first quarter came in stronger than expected – although hopes hadn’t been high on this front – and there was a fall in unemployment. The European Central Bank may remain cautious for some time, but any signs of a change in approach brought about by positive developments were welcomed.
Pound makes gains on the dollar after good news on Brexit
The pound has been tied to the fate of Brexit for some time, and the news that a cross-party agreement had been reached on Brexit sparked hopes that there may be an end to the current uncertainty. The pound made gains across the board and the dollar lost out as the surge of optimism that there was an end in sight impacted the currency market.
The UK is awaiting an announcement from their own central bank today, but changes aren’t expected and a similar approach may be seen to that of the fed. While inflation is inching closer to the 2% target, the Monetary Policy Committee has expressed concerns about acting before the unknown impact of Brexit is made apparent.