Market Roundup
- Sterling hits five-year low of $1.4695 after UK data, down 0.3 percent on day.
- Sterling hit a six-week low against the euro.
- China's yuan hit its highest level against the dollar since mid- January on Wednesday.
- Bank of England minutes show MPC voted 9-0 in march to keep interest rates unchanged at 0.5 percent.
- Standard & Poors- Downturn in China is now entering its third year; the bottom of the cycle may take another two to three years to materialize.
- Fitch - Longer-term, a recovery in the non-mining business sector would help maintain Australia's economic growth.
- European Union Jan Eurostat Trade NSA, decreases to 7.9 bln eur (consensus 15.0 bln eur) vs previous 24.3 bln eur.
- United kingdom mar BOE MPC vote cut stays flat at 0.
- United kingdom Mar BOE MPC vote unchanged stays flat at 9 (consensus 9.0 ) vs previous 9.
- United Kingdom Jan Avg Earnings (ex-bonus) decreases to +1.6% (consensus 1.8 %) vs previous 1.7 %.
- United kingdom Jan ILO Unemployment Rate stays flat at 5.7 % (consensus 5.6 %) vs previous 5.7 %.
- Italy Jan Trade Balance EU decreases to 0.452 bln eur vs previous 0.506 bln eur.
- Italy Jan Global Trade Balance decreases to 0.219 bln eur vs previous 5.756 bln eur.
- Swiss ZEW Investor Sentiment -37.9 in Mar vs -73.0 in previous month.
Economic Data Ahead
- (0700 EDT/1100 GMT) US MBA Weekly Mortgage Application Indices
- (1030 EDT/1430 GMT) EIA Weekly Petroleum Statistics
Key Events Ahead
- N/A UK ChancExch Osborne presents '15 budget to Parliament
- N/A ECB Governing Council, Riksbank executive board meetings.
- (0900 EDT/1300 GMT) FOMC resumes two-day meeting -- Fed Outlook
- (1000 EDT/1400 GMT) Treasury Sec'y Lew testifies before House Appropriations subcommittee
- (1400 EDT/1800 GMT) Fed Statement and Summary of Economic Projections
- (1430 EDT/1830 GMT) Fed Chair Statement
FX Recap
The dollar strength has translated into a weakening of US economic momentum and corporate profit warnings in Q1, bringing with it still falling pipeline inflation and tame wage growth. This may not stop the Fed from signalling later today that it is still on course to raise rates around mid-year (June in our view), but in a nod to low inflation and a strong USD the projections for rate hikes are likely to be lowered and re-align more closely with the view implied by Eurodollar and Fed fund futures.
EUR/USD traded at 1.0609 levels, posted a gain of 0.14% on the day, bouncing-off day's high at 1.0619 levels. It erased previous gains and remained lifted amid slight weakness in US dollar across the board on the back of lower US treasury yields. 1.0580 - 1.0614 is the overnight range. Asymmetric risk of a squeeze higher likely in spot if the Fed doesn't deliver on the consensus call of a drop in 'patience'. Yellen remarks on rate lift off and revised rate projections are also the key elements. Support is seen at 1.0458.
USD/JPY: 121.26 - 121.41 is the overnight range. Spot maintains tight range ahead of the crucial FOMC meeting. Large option expiries at 121.50 and 121.70 also seen capping upside. Resistance is found at 122.04, Mar-10 high. EUR/JPY resistance is seen at 129.22/130.65. Q4 financial accounts data showed that pension funds net sold trn of JGBs and net bought trn of foreign bonds and equities, both record amounts. Chief Cabinet Secretary Suga said he expects to see annual pay increases across all sectors.
GBP/USD: Sterling hit hard by soft UK earnings, 1.8% vs 2.2% f/c. It fell three-quarters-of-a-cent to 1.4674, lowest level since June 2010. Sub-f/c earnings is a blow for hawks advocating pipeline UK rate hike, UK ILO jobless rate is higher than expected too: 5.7% vs 5.6% f/c. BoE has flagged risk of further upward pressure on GBP, 1.45, 1.4228 (2010 low) & 1.35 (2009 low) are among the cable bear targets. No surprises from the BoE minutes as all nine MPC members voted to keep policy unchanged. The MPC committee acknowledged that divergent monetary policies between UK and euro area could cause further GBP strength and keep inflation below target for longer.
AUD/USD: 0.7602 - 0.763 is the overnight range. Spot is on the back foot, 0.76 support at risk as iron ore miner Fortescue pulls $2.5bn bond issue on poor demand. All eyes are on the Fed and AU/US 2y swap spread (117bp). RBA Stevens speaks on Friday.
