04/05/2018 - Fed expected to Tighten Policy at Faster a Pace

USD

The negative sentiment surrounding the greenback since the start of 2018 has been reversed over the past two weeks on expectations that the Fed will tighten policy at a faster pace than other major central banks such as the Bank of England and the ECB which have both given a more dovish tone in recent weeks.

Data released yesterday also showed that purchase orders placed with US manufacturers rose by more than expected in March, driven by strong demand for transportation equipment and a range of other products. However business spending on equipment slowed.

At the same time, reports also showed that the trade deficit in the US narrowed sharply in March as exports in commercial aircraft and soybeans increased to a record high.

Although the FOMC left its benchmark interest rate unchanged on Wednesday, the committee showed its confidence that recent inflationary pressures close to the bank’s target would be sustained, leaving it on course to raise borrowing costs in June. However some analysts have taken the Fed’s comments as a signal that it may allow prices to increase above its desired level.

Further gains in the US currency will depend on further improvement in growth and inflation, which would give the Fed scope to hike rates an additional three times this year. Investors will today be eyeing April’s employment report to gauge the strength of the labour market as well as inflationary pressures.

Key Announcements

13:30 - USD: Average Hourly Earnings m/m; Forecast at 0.2% against a previous of 0.3%

13:30 - USD: Non-Farm Employment Change; Forecast at 189K against a previous of 103K

13:30 - USD: Unemployment Rate; Forecast at 4.0% against a previous of 4.1%