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Fed keeps outlook steady

The April FOMC meeting minutes last night did little to change perception on the Fed, namely that a June rate hike is off the agenda (but not totally ruled out) and that the economy does not seem strong enough yet for them to start their much anticipated tightening cycle. There was some dollar volatility around the release, but the net result was that the dollar was little changed and interest rate hike expectations were marginally softer. In the wider picture. FX has stabilised over the past 24 hours, but we’ve still seen a near 3% down-move on EURUSD, with the single currency proving to be the most vulnerable in the face of the resurgent dollar.

For today, the early focus remains on the euro with the release of preliminary PMI data for May in the Eurozone. Whilst the surge higher in bond yields has played a key role in the euro recovery, it has also been helped at the margins by better data on the real economy, so the focus will be on whether the PMI data shows this continuing. Elsewhere, retail sales data in the UK will be the focus for the pound, with a modest recovery anticipated from the weakness seen in the March data. The ECB also releases an account (not minutes) of the April policy meeting, but this should be of peripheral interest. The yen price action still has the potential to excite, given the move above 121.00 on USDJPY which puts the March high of 122.03 in sight. EURGBP also pushing the lows of both this month and April (0.71231 & 0.71175 respectively), a break below which would put the March and year low of 0.70143 in sight.

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