Daily Market Pulse
Fed Set to Hike Rates Again, but are They Done?
5 minute readUSD
The US dollar is down against its major counterparts to start the day as markets digest the ADP payroll data and await the 10:00 am EST Services PMI release, followed by the Federal Reserve's rate decision at 2:00 pm EST. The Federal Reserve is expected to increase the rates by 0.25%, raising borrowing costs to their highest since September 2007.
However, investors will watch closely for any hints that the Fed may halt the rate hikes for the foreseeable future.
Some analysts speculate that the Fed may cut rates by year-end due to economic factors such as slowing inflation, lower-than-expected GDP growth, and declining earnings for a second consecutive quarter. Following the release of their decision, Fed Chair Powell will hold a press conference at 2:30 pm EST.
EUR
Following a volatile Tuesday, EUR/USD saw another jump on Wednesday as investors reacted to the release of ADP private sector employment and ISM Services PMI data from the US, as well as EU unemployment data showing a decrease in the unemployment rate to 6.5% in March from 6.6% the previous month. The Euro's short-term path will likely depend on the Federal Reserve's guidance on future rates, as well as tomorrow's interest rate decision from the European Central Bank's interest rate decision, which is expected to follow the Fed's lead and raise its target rate by 25 basis points. Markets eagerly await any indication that the ECB may diverge from the Fed going forward by remaining hawkish on rates, which would be bullish for the Euro.
GBP
The Pound is rallying this morning after two consecutive days in the red to start the week. With a quiet day ahead on the UK economic calendar, GBP/USD will take direction from the US dollar reaction to the Fed decision, as well as broader risk sentiment, which has slightly improved from yesterday, as seen in this morning's rallies in both European equities and US equity futures. Looking ahead to tomorrow, UK Manufacturing and Services PMIs are on the calendar and are expected to remain in line with the previous readings.
JPY
A quiet day ahead in Japan as the local market is closed for the next two days. The Yen is benefiting from the broader shift out of the US dollar over the last 24 hours leading up to the Fed decision, and USD/JPY is now down around 1.4% over the previous two days. Despite the recent drop, the pair is still firmly in the green for the year – up well over 3% as of this morning.
CAD
USD/CAD is up again today despite broader weakness in the greenback as the Loonie continues to feel the effects of falling oil and natural gas prices. Oil is weighing on the commodity-linked currency, with West Texas Intermediate tanking over 5.5% yesterday and over 9% for the week. Heading into the US session, USD/CAD is up around 0.7% for the week.
MXN
The Peso is rebounding this morning after taking a step back yesterday amidst a broader decline in LATAM currencies. The gains from the commodity-linked currency come despite the selloff in oil as investors continue to look fondly at the prospects for the Mexican economy amongst many of its other emerging market peers. USD/MXN traders now await a reaction in the pair after the Fed decision this afternoon and ahead of consumer and employment data coming out of Mexico tomorrow.
BRL
The Brazilian Real took a step back yesterday after Brazilian manufacturing data exceeded expectations. USD/BRL closed Tuesday down 1.1% and is slightly up again this morning ahead of interest rate decisions from the US and Brazil. Despite the high likelihood that Brazil's Central Bank holds the Selic rate at 13.75% for the sixth straight meeting, the 5:00 pm EST decision is highly awaited as investors seek clarity from the Bank on the future path of rates. Looking ahead, April inflation data out of Brazil is on deck tomorrow morning and is forecasted to match the 0.39% rise seen last month.
CNY
April Caixin Manufacturing PMI is on the calendar this evening and will be one many investors will watch. After unexpectedly declining in March, some analysts showed skepticism about the strength of the Chinese economy – which remains primarily driven by manufacturing. Given China’s position in the global economy, another disappointing reading could fuel concerns of a global economic slowdown and weigh on the Yuan in the short term.
