the Fed seemed divided on assessing recent economic developments, April’s
minutes clearly opened the door for a June rate hike, as most participants
judged that if incoming data wasconsistent with economic growth picking up in
the second quarter, that the Fed is likely to increase rates in the next
meeting in June.
Fed, which does not want to surprise markets, is clearly trying to adjust
expectations which had become firmly pessimistic towards further tightening.
The immediate reaction to the minutes was a U.S. dollar rally across the board,
U.S. bond yields jumping higher, and stocks reversing earlier gains to close
a shift still has the potential to lend the dollar further support inthe short
run.However, with less than a month until June 14-15 Fed meeting, the upcoming
core personal consumption release on May31st and labour data on June3rd are
going to be the key numbers to look for to assess whether USD rally still has
legs, since theCPI figures are going to be released a day after the Fed
Aussie is the worst performing currency across the board today, falling to
lowest levels in 10 weeks against the USD.
Although unemployment remained at 5.7% and the economy managed to add
10,800 jobs in April, it is about quality not quantity. Full-time employment
fell by 9,300 while part time jobs rose 20,200 suggesting that the RBA should
be concerned about the quality of the Jobs being added. The report today will
nottrigger an immediateaction from the central bank to lower rates further in
June’s meeting, but if further data provided more downside risk to the economy
especially if inflation remained subdued, then a rate cut could be on the table
and AUDUSD at 0.70 is a potential short term target.
is trying to hold onto its yesterday’s gains trading close to a 2-week high
against the USD. Labour data on Wednesday provided some mixed signals but
slightly to the positive side. Employment in the UK has hit another record
high, rising by 44,000 the first three months of 2016 and unemployment fell by
2,000. On the other hand, earnings
excluding bonus rose by 2.1% in the three months to March, down from 2.2%.
However, the pound’s rally was again politically influenced and not
economically driven as recent polls from Ipsos-Mori and YouGov showed the
in-campaign taking the lead. The pound will continue to be driven by polls but
today’s retail sales at 8:30 GMT could cause little volatility.