In last nights much anticipated monetary policy meeting, the Federal Reserve decided to maintain its monthly bond purchasing program of US$85bn whilst also being ready to increase or decrease the purchases should economics conditions require it.

In last nights much anticipated monetary policy meeting, the Federal Reserve decided to maintain its monthly bond purchasing program of US$85bn whilst also being ready to increase or decrease the purchases should economics conditions require it.

The main take away from the news is the change from a few months ago when the Fed were readying themselves to decrease the monthly purchases by the end of the year to a stance now where they are more accommodative and thus we could see the current policy remain longer than initially anticipated. The Fed also kept interest rates at the record low of 0.25%.

The US dollar remained under selling pressure throughout yesterday’s European trading session as ADP employment change figures fell below expectations to come in at 119,000 below the forecasted 150,000.  ISM manufacturing PMI fell below March’s reading of 51.3 and the forecasted 50.9 to come in at 50.7; once again highlighting the slow recovery of the US economy. If the non-farm payroll figures, released on Friday, also disappoint like yesterday’s ADP employment change figures then we could well see further losses for the US dollar.

Earlier in the day sterling was boosted by better than expected Markit manufacturing PMI figures, driving the currency higher against most of its counterparts. The next set of figures for the second quarter are due out today with PMI construction and the on Friday with the Markit Services PMI.

Currencies of commodity linked nations were under selling pressure after NBS manufacturing PMI data from China fell below expectations. As a result demand for commodities subsided yesterday and the Australian dollar and New Zealand dollar lost approximately 1% yesterday against the pound and the Canadian dollar lost 0.5% against the pound.

After a day off yesterday to celebrate May Day the euro zone comes back under focus today.

We have had a good round of Markit manufacturing figures come in across from Europe this morning. However the set of results have had limited impact on the euro as investors look towards this afternoon’s ECB’s interest rate decision and subsequent press conference by Mario Draghi. With inflation dropping, unemployment rising and Italy and Spain remaining in recession, speculation has been mounting of a 0.25% interest rate cut to be made this afternoon.

A 25 basis point cut may already be priced in to the markets and thus if we fail to see the ECB follow through, we may see the euro strengthen and inversely if the ECB cuts interest rates then we may well see GBP/EUR attempt to breach the highs of April 26th.

Key Announcements:

9.30am – GBP – PMI Construction (Apr): Expected to increase to 48.

12.45pm – EUR – ECB Interest Rate Decision: Expected to fall to 0.50%.

13.30pm – EUR – ECB Monetary Policy Statement and Press Conference.

13.30pm – USD – Initial Jobless Claims (Apr 26): Expected to increase to 345,000.

13.30pm – USD – Trade Balance (Mar): The deficit is set to reduce to –US$42bn.