Fed Signals Less Global Concern but No Urgency Either – MUFG
Derek Halpenny, European Head of GMR at MUFG, notes that the dollar is
generally unchanged versus most currencies (except the yen and kiwi)
after the April FOMC delivered few surprises.
Key Quotes
“Given
the April FOMC does not incorporate any forecast updates or a press
conference there was little expectation of much surprise at this meeting
– and that’s exactly what we got. The reference to domestic economic
activity was downgraded with economic activity appearing to “have
slowed” while growth in household spending had “moderated”.
But
the key highlight was the indication of reduced fears over the past
volatility in financial markets with the statement not including the
March comment that “global economic and financial developments continue
to pose risks”.
Given crude oil prices are now 70% higher from
the low hit on 11th February and given the flow of data from China has
improved; there was every justification for the indication of reduced
concerns. But that in of itself does not necessarily signal a likelihood
of a rate increase at the June meeting.
The downgrade to the
domestic economic description serves as a reminder that weakening
economic growth might provide the justification for a further delay
beyond June. What is for sure is that the jobs data in May and June
before the June meeting will be crucial. Those data releases could
largely determine whether the FOMC acts in June.
The only other
variable that could take on greater importance is the impact ‘Brexit’
concerns are having on global market conditions by the time of the FOMC
on 15th June. The referendum is exactly eight weeks away with the
‘Remain’ campaign pulling ahead over the past two weeks.
We
would be very surprised if that gap remained stable and there is
certainly a risk of greater volatility in European markets that prompts
the FOMC to hold off until July. That decision of course would have to
be balanced against the strength of domestic economic data over the next
seven weeks. With US yields softening and after the surprise BOJ and
RBNZ decisions, the dollar is likely to trade weaker over the
short-term.”