Markets were nervous ahead of yesterday’s main events and continued to trade that way until the FOMC press conference began. It was a very important day for the FX industry as we had the release of the UK employment report, minutes from the March UK monetary policy meeting, the pre- election budget in the UK and then after London closed we had the release of the US FOMC statement.
Firstly, the FOMC meeting injected volatility into the market. As many had expected the FOMC dropped the observation that it could be “patient” in normalising monetary policy. The FOMC also stated that the lift-off remains “unlikely at the April FOMC meeting” leaving June open as an option. However, the Dollar fell as the comments that followed were slightly dovish and cautious. The FOMC lowered the projected path of policy, therefore reducing the market’s expectations on the pace of rate hikes. The FOMC also lowered their growth forecast and stated that growth has “moderated somewhat”.
Meanwhile, the UK annual budget. The key points from this budget were skewed to the upside as politicians aimed to score points ahead of this year’s election. Chancellor of the ex-chequer George Osborne stated that the UK grew 2.6% in 2014, faster than any other advanced economy (leaving out that this was lower than the 3% predicted in December). He went on to predict that inflation is to fall to 0.2% in 2015. Osborne was upbeat about the labour market saying that there is record low unemployment in the UK, with the jobless rate to fall to 5.3% this year. Unemployment in the UK ticked higher to 5.7% and average earnings fell to 1.8%, missing economists’ consensus. The worse than expected data suggests that the Bank of England will delay raising interest rates as the labour market struggles this lead to a short sell off of the Pound yesterday day.
Today’s attention will switch to the struggling Eurozone and trouble in Greece as Day 1 of the EU Economic Summit begins. We also have the release of the Philly Fed Manufacturing from the US and the next batch of the ECB’S targeted LTRO, forecast substantially lower at €40 billion.