Dollar a little softer ahead of Fed

The dollar weakened a little yesterday alongside a fall in US stocks, which ended lower for a second session running. Ahead of the Fed’s latest interest rate announcement later today, the US currency is trading at around $1.1360 and $1.3350 versus the euro and sterling respectively. EURGBP remains very tightly range-bound, hovering just above £0.85. The Fed is widely expected to stay on hold at today’s meeting, and given its tariff-related inflation concerns, is likely to reiterate that it remains appropriate to keep interest rates at their current ‘moderately restrictive’ level (4.25%-4.50%) for the time being.

US bond yields nudged down as stocks lost ground, with 2-and 10-year yields both falling by around 5bps, while German and UK yields were mixed, with 2-year yields slightly lower but 10-year yields slightly higher. In equity markets, the S&P 500 shed around 0.8% while European stocks were off almost 0.5%.

China’s central bank has lowered its key interest rate slightly and cut the required reserve ratio for lenders by half a percentage point, as it takes further measures to support its economy. Meanwhile, in statements from the two governments, China and the US have said they will hold trade talks over the coming days, presumably an attempt to “de-escalate” the current situation between the two sides.

The US trade deficit widened out sharply again in March according to data released yesterday, although this wasn’t too much of a surprise given what was known from last week’s Q1 GDP release. The deficit in goods and services rose to $140bn from $123bn in February, driven by an increase in the deficit in goods trade. This in turn reflected an increase in imports, which rose by almost 5.5% on the month (with exports broadly flat).

Apart from today’s Fed meeting, it’s relatively quiet again on the economic data front with retail sales for March due in the Euro area and the April construction PMI scheduled in the UK.