Fed firmly on hold

The euro briefly strengthened against the dollar following yesterday’s Fed meeting – at which interest rates were left unchanged – getting up to over $1.1250, before falling back again to just under $1.12 as it became clear that the Fed is firmly on hold despite the fall in underlying inflation over the past few months. The pound is firmer ahead of today’s Bank of England meeting amid speculation one or two members may dissent in favour of raising interest rates, trading at under 86p against the euro and at $1.3050 against the dollar

The Fed kept interest rates steady yesterday, noting that economic growth in the US is solid and the labour market strong, with the pace of job gains more than sufficient to keep the unemployment rate on a downward trend. It also said that some of its concerns about the health of the Euro Area and Chinese economies had been allayed by recent data out of both, and some of its worries on the trade front eased by the discussions currently taking place between the US and China. On inflation, the Fed said it believes the recent decline in underlying inflation will prove transitory and sees it returning to the 2% mark aver time. All of this suggests the Fed is set to keep interest rates firmly on hold in the period ahead

The Bank of England announces its latest interest rate decision at noon today. Economic growth in the UK has picked up lately, the unemployment rate has fallen to a fresh cycle low and earnings growth has firmed, and inflation is running broadly in line with its target, meaning the BOE is the only one of the major central banks currently meeting its inflation objective. Given this, the BOE might be considering raising interest rates, but it remains frozen in the glare of the Brexit headlights and so is instead likely to keep rates on hold at 0.75%

Data due today includes a final reading for the Euro Area manufacturing PMI for April and the latest construction PMI in the UK, while jobless claims and unit labour costs are scheduled in the US