Daily FX Update, 28 April 2016

OVERNIGHT MARKET UPDATE:

·         US – The FOMC trod the tightrope successfully, managing to not roil markets while remaining on message that gradual policy normalisation is in train. As expected, the sentence concerning the ‘risks’ posed by global growth and markets was removed, but a new note that they were monitoring them closely suggested they are not entirely convinced the risks have dissipated. The tone of comments on the labour market was strengthened, while spending was noted to have ‘moderated’ despite ‘solid’ increases in households’ real incomes.

·         Euro area – March M3 rose 5.0% y/y, up from a revised 4.9% y/y in February. The gradual recovery in the credit cycle is continuing, which should help underpin a deepening in the economic recovery going forward.

·         UK – The advance estimate of Q1 GDP was in line with expectations, rising 0.4% q/q and 2.1% y/y. The annual rate was unchanged from Q4, but the quarterly rate slipped from 0.6%, hit by a continued decline in the industrial sector. 

·         Currencies – US dollar was little-changed after the release of the Fed April policy outlook. Markets are now pricing in a 23% probability that the Fed will raise rates in the June meeting.

·         Equities – The Dow Jones and the S&P500 ended slightly higher after the Fed left interest rates unchanged and provided little indication when it would deliver another rate rise.

·         Rates – US Treasury yields tumbled to their lowest level in a week, after the Fed left interest rates unchanged and took a wait-and-see view of future interest-rate hikes.

·         Energy – The crude oil prices continued to strengthen after US output was shown to have fallen again last week. The EIA’s latest weekly report showed that crude oil production fell to 8.94 million barrels per day last week. Prices initially sold off after the report showed inventories jumped 32 million barrels to 540.6 million barrels.

·         Precious Metals – Gold edged higher despite a slightly stronger USD. With the Fed statement being relatively market neutral, gold prices found some support.