Throughout the day we saw the Dollar weaken off ahead of the FOMC decision. Early attention was on the first reading of US Q1 GDP. Growth in the US disappointed as the pace of growth was expected to decline from 2.2% to 1.0%, the actual reading showed that the economy only expanded by 0.2%. This only adds to the soft data seen from the US recently which the Fed commented on during their statement.
The FOMC meeting was highly anticipated with the market already second guessing the change in tone from the Fed. The Fed acknowledged that data since March suggests that economic growth slowed during the winter months, which was attributed “in part” to “transitory factors”. In addition, pace of job gains had “moderated” and that the unemployment rate had remained “steady”. In large, this was enough for the market to re-evaluate the June forecast with the focus now on September. However, it regained some of its loses as the commentary left the door ajar for a June hike. The Fed went on to say
“although growth in output and employment slowed during the first quarter, the Committee continues to expect that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators continuing to move toward levels the committee judges consistent with its dual mandate.”
Unlike in March they also did not rule out a hike at the next meeting (June). Data will be closely examined until then for any change in sentiment.
Data from the UK continued it soft tone. Yesterday we saw the release of the CBI reported sales numbers. This follows on from the disappointing GDP number earlier in the week. Retail sales unexpectedly slowed in the year to April, but retailers are gearing up for a sharp rise next month, with expectations hitting the highest level since May last year.
Looking to the day ahead we have key inflation and employment readings from Europe. Meanwhile crossing the pond there will be a keen eye on the US jobless claim and PCE Price Index (a gauge of inflation) following last night’s FOMC statement.
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