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US Dollar Continues Higher ahead of FOMC

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US Equities

Wall Street ended the session mixed on Tuesday as trade woes rise again. US stocks started the session deep in red with Dow Jones losing more than three hundred points, as the ISM manufacturing PMI came out lower than expected. However, Apple’s earnings release supported the indices in covering their losses. The earnings outlook continues to back up the stock market, as major US companies show the best gains since 2011.

USD

The US Dollar Index, DXY, rose near five-month highs ahead of the Federal Open Market Committee interest rate decision tonight. The Federal Reserve began a two-day meeting on Tuesday and is awaited to offer clues about raising interest rates. The Fed is expected to move more than two times throughout the year, as the economic outlook continues to strengthen and inflation is on the rise. The bond market is not pricing in any change in interest rates today, but the rate hike probability distribution by Reuters gave more than 90% chance of a rate hike in every meeting from June 2018 to Jan 2019. Also, in terms of data, the ADP Nonfarm Employment Change for April is due.

EUR

The Euro breached the $1.20 level for the first time since early January. The common currency is pressured by the divergence in the economic outlook between the Eurozone and the United States, which is resulting in the divergence of the monetary policy adopted by the central banks. As for today, the Manufacturing PMI and the preliminary release of the first quarter GDP will be released.

GBP

The Sterling tumbled lower on Tuesday after worse-than-expected economic data. The Manufacturing PMI for April dropped to the lowest in seventeen months. The British Pound dropped for ten days in the past eleven trading days, as the positive economic outlook weakened. In terms of data, the Construction Pmi for April is due. The Construction Pmi for March was the lowest in more than two years.

Gold

Gold prices dropped more than one percent yesterday to find support near the $1300 level. Gold traders will be looking carefully for the interest rate decision of the Federal Reserve, as interest rate hikes will boost the treasury yields that added pressure on the non-yielding bullion in the past weeks.

Oil

Oil prices slipped to two-week lows on the rising US oil production and supply. The American Petroleum Institute showed that the supplies rose by 3.427 million barrels last week. The official inventory data by the Energy Information Administration is due today.

The most important economic events:

GMT Country Event Expectation Previous
7:55 EU German Manufacturing PMI (Apr) 58.1 58.1
8:00 EU Manufacturing PMI (Apr) 56.0 56.0
8:30 UK Construction PMI (Apr) 50.5 47.0
9:00 EU GDP (YoY)   2.5% 2.7%
9:00 EU GDP (QoQ)   0.4% 0.6%
12:15 US ADP Nonfarm Employment Change (Apr)  200 241 
14:30 US Crude Oil Inventories 0.739  2.170
18:00 US FOMC Statement      
18:00 US Fed Interest Rate Decision 1.75% 1.75%

 

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