Mixed numbers stateside over the course of the afternoon, with ADP payrolls coming in higher than expected, but then both the JOLTS job openings and ISM manufacturing came in lower than anticipated. The net effect on USD was minimal going into the evening's Fed meeting. Market sentiment was lower across the board, dragging GBP lower across the board as well.
The high hawkish bar was not met by Fed Chair Powell last night, after he commented that he feels monetary policy is restrictive enough at present and that “persuasive evidence” will be needed for the Fed to hike interest rates. The lack of a hawkish surprise failed to give a fresh catalyst for market to buy into USD as a result, with focus now likely to fall on Friday’s job numbers.
There was volatility on JPY pairs overnight on speculation that authorities in Japan intervened in FX markets for the second time this week. Similar to Monday we saw broad USD selling across the board, although limited to key support levels.
*Daily move - against G10 rates at 7:30am, 02.05.24
** Indicative rates - interbank rates at 7:30am, 02.05.24
Both GBPUSD and EURUSD are trading back up to key resistance levels on the back of the Fed meeting, as well as speculation on additional intervention talks in Japan. However, there doesn’t appear to be enough from the Fed meeting to spur on additional USD selling in the markets, and going into tomorrow's job numbers we would expect consolidation on USD pairs today. Worth noting Powell's comments on ‘persuasive evidence’ needed for a rate hike, and thus puts focus on future data points to determine whether markets start pricing in a rate hike by the Fed this year. Friday jobs numbers and CPI numbers on the 15th May will be likely the next key dates for USD.
On the geopolitical front, reports suggest that the US and Saudi Arabia are close to a new defence pact that could lay out a path to diplomatic ties with Israel, should Tel Aviv bring the war in Gaza to an end.
With markets deeming Fed Powell to be dovish with the pushback against considering a rate hike at present, market pricing for a rate cut by the Fed has switched from looking likely in December to now looking more likely in November. Market focus will now fall on Friday's job numbers and then the CPI numbers on the 15th May.
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