Yesterday, the Fed concluded its May meeting, leaving interest rates unchanged. This was expected. What was not expected was the Fed’s decision to include a new term in the accompanying statement. They added the term, symmetric, which implied that they would continue the policy of gradual tightening. On Monday, the Bureau of Economic Analysis released data on Personal Consumption Expenditure (PCE) that rose to 2%. As such, it is likely that the Fed will have two or three more rate hikes this year.
The EU released the GDP numbers yesterday. The numbers showed that the EU economy was slowing faster than expected. The GDP expanded by 2.5%, which was lower than the 2.7% released in the last three months and the 2.8% released in December. Today, the consumer prices data missed the analysts’ forecasts. The CPI grew at an annual rate of 1.2%, which was lower than the expected 1.3%. Core CPI, which excludes volatile products rose by 0.7% which was lower than the data released a month ago. At the same time, policy makers are optimistic that the economy will continue to strengthen, according to the economic forecast data released today. They were however concerned about the new threats to global trade and the elevated levels of asset valuations.
In the UK, Theresa May continued to face the challenge of the customs union. On one hand, her proposal of a ‘customs partnership’ has been rejected by hardcore Brexit supporters. This proposal would remove the need for new customs checks at the border. Her other option is the ‘highly streamlined’ customs arrangement has been rejected by people opposed to Brexit. This option would minimize the customs checks at the border by using technology and using trusted trader schemes.
The EUR/USD pair gained slightly after the interest rate decision yesterday. However, the jump was short lived and the pair continued the downward trend. It is now trading at 1.1990, which is an important support level. Traders are now looking ahead to the jobs numbers yesterday. They will come just a day after ADP released private payrolls data that beat the analyst’s forecasts. As the EU area economy slows, it is likely that the pair will continue moving lower.
The USD/CHF pair has been on an upward trend since February when the pair reached a low of 0.9190. The pair reached a milestone today when it reached parity. The franc has continued to deteriorate after the SNB sounded dovish. The officials believe that the currency is overvalued and have ruled out any policy changes. On the other hand, the Fed sounds hawkish which means that the pair could continue to rise.
The GBP/USD pair continued to fall following the increasing risks of a no-Brexit deal. It also fell after the sentiment on the country’s services sector rose by a slower rate than analysts had estimated. The PMI showed that the services PMI rose by 52.8, which was lower than the 53.5 analysts were expecting. The pair is now trading at 1.3595, which is the lowest level since January this year. As shown below, the RSI is showing that the pair is oversold, which is an indication that a recovery might still be possible. This will depend on tomorrow’s jobs numbers and the progress on Brexit negotiations.
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