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Fed holds rates as markets await UK Services PMI.

By Jake Trask

After a slew of poor data there was finally some good news for pounds-bulls yesterday as the monthly Markit/CIPS UK Construction PMI showed a strong rebound for April after March’s dismal, snow affected reading. The survey printed 52.5 up from 47 in March however the authors noted it was “difficult to gauge underlying momentum” given how badly the sector was hit by the Beast from the East. Today brings the key Services PMI which is again expected to show an uptick from March. The consensus is a solid but pretty unspectacular 53.5 and anything higher should add support to the pound which has managed to get its head back above 1.36 vs the dollar this morning.

The FOMC left the rates on hold as expected yesterday and gave little away in its accompanying statement. The dollar initially rallied then fell away as markets took time to digest the tone of the statement with Asian markets eventually seeing it as slightly hawkish however it did little to change the consensus of three hikes this year being more likely than four. Some analysts expect the Fed to be tolerant to inflation running above its 2% target over the next 12 months which is highlighted by the odds of four hikes being currently around 33%. USD/JPY has made a few attempts to take 110 this week falling short on each occasion. Should we see a strong US Jobs Report tomorrow then we may see the greenback finally take out this key level.

EUR/USD has been tanking over recent days as Eurozone growth looks like it has peaked with yesterday’s first quarter Prelim Flash GDP figure coming in at a 0.4% compared to 2017 Q4’s 0.6%. There has been a moderation in output in the EZ powerhouse Germany’s factories of late which had seen Manufacturing PMIs printing unprecedented highs late last year. Although the slowdown is merely seen as cyclical and nothing more concerning the move into a lower gear combined with persistently low inflation is likely to see an extension of QE at the ECBs June meeting. Today sees the latest inflation figures from the Eurozone with CPI overall expect to remain at 1.3% y/y and the core reading to predicted to drop slightly to 0.9%. EUR/USD trades around 1.20 with GBP/EUR still tracking sideways between 1.13 and 1.14.

The Aussie has managed to retake the 75 cents handle against the greenback overnight as monthly Building Approvals and Trade Balance figures both beat estimates. Markets are expect to remain relatively steady today as post-FOMC and pre-US jobs report positioning takes place. GBP/AUD hovers around 1.81

It’s been a relatively quiet week for the Canadian dollar with USD/CAD held between 1.28 and 1.29 as all eyes now focus on the US Jobs Report. This afternoon sees Marchs Trade Balance figures from Canada published with a deficit of CAD2.3B predicted. GBP/CAD trades just under 1.75 at the moment with sterling’s slump of late looking to have come to a halt (for now).

The Kiwi has managed to retake the 70 cents handle against the dollar over the past 24 hours after dropping below the big number for the first time this year. There is little on the horizon for the rest of the week so, again, its all about US Jobs numbers. GBP/NZD is around 1.94.