Fed to stay on hold again today
The dollar advanced further yesterday albeit its gains were modest and it is currently off its best levels ahead of the Fed’s interest rate announcement later today. The euro and sterling are trading at around $1.1560 and $1.3360 against the US currency respectively this morning (versus lows yesterday of about $1.1520 and $1.33), while EURGBP has edged down further, to around £0.8650, having fallen at the start of the week following the announcement of the EU-US trade deal. The Fed is widely expected to keep policy on hold for a fifth consecutive meeting today, so the interest will be in whether it gives any hint that it might be preparing to resume lowering interest rates at its following meeting in September.
US bonds rallied strongly, helped by some soft economic data (which contributed to a modest firming of expectations for Fed rate cuts over the coming months) and a successful auction of 7-year bonds, with yields falling by 6-10bps across the curve. Elsewhere, German yields were marginally higher on the day while UK yields ended a touch lower. In equity markets, European stocks closed higher for the first day in three, adding almost 1%, while the S&P 500 in the US retreated from Monday’s all-time high, shedding around 0.3%.
The number of job openings in the US fell quite sharply in June according to data published yesterday, although they remain off the lows of earlier this year, and while consumer confidence edged up in July according to the Conference Board’s measure, respondents’ assessment of current labour market conditions were less favourable than in June. The latest trade data shows US exports fell again last month, but imports fell more sharply which will have boosted GDP in Q2 (a first estimate is due later today).
The IMF has nudged up its forecasts for global GDP growth this year and next to 3.0% and 3.1% respectively (from 2.8% and 2.9% in April), citing a front-loading of activity ahead of tariffs earlier this year, lower effective tariff rates than assumed in its previous projections, better financial conditions (helped by the rally in equity markets), and fiscal expansion in some major jurisdictions (including the US and Germany).
As well as the Fed’s interest rate announcement it’s a busy day ahead in terms of economic data, with the Economic Sentiment Indicator and a first estimate of Q2 GDP due in the Euro area and the ADP employment report and Q2 GDP & PCE inflation scheduled in the US.