Daily Forex Fundamental Overview

Fundamental Analysis

USD

“Two rate hikes are certainly possible. We have enough (Fed policy) meetings remaining but it depends entirely on how the economy evolves”

- Dennis Lockhart, Atlanta Fed President

Atlanta Federal Reserve President Dennis Lockhart said that the UK’s referendum on whether to leave the EU could "loom large" as the Fed weigh whether to hike interest rates at its next policy meeting. Lockhart underlined that Brexit could potentially lead to heightened global uncertainty. Yet, the policy maker added that the US economy could warrant a rate hike when the Federal Open Market Committee meets on June 14-15. Lockhart said the market seemed to be underestimating the odds of a rate lift in June. Investors currently only assign a 12% chance of such a move, according to pricing in interest rate futures contracts. Lockhart said two rate hikes this year are certainly possible. Lockhart is not a voting member of the Fed’s FOMC, but his view is seen as a bellwether for what the majority on the central bank is thinking.

Also, San Francisco Fed President John Williams said he is optimistic about the US economy and was giving little weight to the slowdown in first quarter gross domestic product. However, Williams added that he would support an interest rate hike in June as long as he sees sturdy progress on the economy, inflation and jobs. Fed officials left their target range for the benchmark policy rate steady at 0.25% to 0.5% when they met last week, saying that they will “closely monitor” the world situation.

GBP

“There is rising uncertainty about the global economy, the oil and gas industry, retail sector and the EU referendum. With this backdrop unlikely to change in the coming months, the second quarter is likely to remain a bleak landscape for industry”

- Markit

The UK manufacturing sector encountered a surprise contraction in April that reflected in the PMI, as it entered negative territory for the first time in 4 years, plummeting under the 50 point mark to show 49.2 points. The indicator missed the initial investor forecast of 51.2 and fuelled concerns by showing a drop in comparison to March. Worries about industry health were amplified by the Markit Economics claim that output in the manufacturing sector is shrinking in a scale of 1% per quarter, and around 20 000 jobs have already been lost in the last three months. Uncertainty over the outcome of the EU referendum can spawn further effects on Britain’s currency and economy. While recent polls have indicated a positive trend in regard to remaining part of the EU, both global and domestic organizations warn that a vote in favour of Brexit can potentially prompt an economic downturn and imbalances. A combination of uncertainty generating factors both domestically and globally are likely to contribute to a slowdown for the industry in the second quarter.

The UK economy has been experiencing a slowdown as first-quarter data showed economic growth of just 0.4%, with the service, industrial and manufacturing sectors correspondingly displaying signs of weakness. The same trend applied for exports as market conditions weakened.

NZD

“The lift in the quarter was entirely the result of strong participation, which is an encouraging sign”

- ANZ

New Zealand's first quarter employment data showed unemployment rose as the participation and employment rate also increased. The unemployment rate ticked higher to 5.7% in the reported period, from a revised 5.4% the prior quarter and above the forecast of 5.5%. Despite the increase in unemployment, the data suggested the economy was performing well. The participation rate advanced to 69.0% while employment rose 1.2%. However, of those entering the labour force 10,000 failed to find jobs, while the remaining 28,000 were employed. The cost of labour index rose 1.8% on an annualized basis in the March quarter, up from 1.6% in the three months through December. From the fourth quarter to the first quarter, labour cost grew 0.4%, in line with the prior quarter. In the March quarter, New Zealand's inflation climbed 0.4% on year, meaning real wages are still growing at a strong pace, which is likely to continue to boost consumption. The RBNZ is expecting annual inflation at 1.1% by end-2016, down from the forecast of 1.6% made at its December policy review, and just inside its 1% to 3% target range.

Meanwhile, New Zealand house prices continued to rise at a solid pace in April with low interest rates supporting demand for housing. Residential property prices rose 12% year-on-year in New Zealand last month.

 

 

 

 

 

 

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