FOMC Reaction Muted

Currencies Direct May 2nd 2013 - 2 minute read

Yesterday the FOMC left interest
rates unchanged as expected and kept firm to the current pace of
asset purchases.  The reaction in the currency markets was
muted as the Federal Reserve offered nothing significant to lean
the market one way or the other.  The Fed could be seen as
opening the door albeit very slightly for an increase in asset
purchases by noting that they are prepared to increase or decrease
purchases going forward.  They maintained their tone on
employment and growth even despite recent weak data releases.
Overall the meeting could be construed as slightly more dovish but
effectively the FOMC will adopt a wait and see approach which is
reflective of the mixed data of late.

Economic data from the US yesterday
was mixed with weaker ADP employment data, the private sector added
only 119k jobs in April and this could potentially lean towards a
weaker non-farm payroll number on Friday.  ISM manufacturing
also fell but by less than expected.  In essence going forward
weaker data should lead to a weaker USD as there will be more
likelihood of an increase in the pace of asset purchases. 
Elsewhere, Chinese HSBC PMI also came in weaker than expected and
more soft data from China will weigh on commodity currencies and in
particular the AUD.  Bank Of Japan minutes yesterday revealed
a continuation of an aggressive Bank Of Japan that raised few
concerns with the impact on wider financial markets which suggests
more of the same going forward from the BOJ.

Today the focus will be on the
European Central Bank meeting.  The ECB are expected to cut
the refi rate by 25 bp form 0.75.  This has been mostly
factored into the markets now and we are not expecting fireworks on
this decision.  The ECB may also discuss other measures which
could potentially mix things up and move the Euro.  One item
would be a cut in the deposit rate or a mention of this
possibility, this would be euro negative or we could see other
unconventional measures targeting growth.  Also today we have
Eurozone PMI data and of particular interest will be the estimates
of manufacturing PMI for Spain and Italy.

Written by
Currencies Direct

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