Today’s main event risk for the dollar, and potential market shaker will be the outcome of the Federal Reserve’s meeting, which is widely expected to conclude with monetary policy left unchanged. Although May’s FOMC meeting will not include a press conference or fresh economic projections, investors should not be quick to expect the meeting to be a “non-event.”
King Dollar has appreciated against a basket of major currencies ahead of this afternoon’s estimate of first-quarter GDP growth. Seasonal factors are expected to see GDP growth cool in Q1, but this could have little impact on the Dollar’s mojo. With rising U.S. bond yields and expectations of higher U.S. interest rates heavily supporting the dollar, it is likely to hold its own against most majors.
Buying sentiment towards the British Pound deteriorated sharply yesterday, after dovish comments from Bank of England’s Governor Mark Carney heavily diluted expectations of an interest rate hike in May.
The British pound's abrupt and aggressive depreciation following disappointing UK inflation data continues to highlight how sensitive the currency is to monetary policy speculation. The UK headline inflation rate unexpectedly dropped to 2.5% in March, which immediately raised doubts over the Bank of England raising interest rates next month. With UK wage growth rising faster than inflation, the squeeze on consumers is slowly coming to an end.
A touch of risk aversion crept into financial markets on Wednesday, as the sense of relief over easing U.S.-China trade tensions was overshadowed by the rising geopolitical risk surrounding Syria. Asian stocks closed mostly mixed due to market caution, with European equities sinking lower as investors adopted a guarded approach. Although Wall Street ended higher on Tuesday as trade fears eased, geopolitical tensions could pressure U..S equity bulls this afternoon.