03/05/2018 - Fed May Allow Inflation To Run Above Target

USD

The Dollar struggled late on Wednesday after the Federal Reserve indicated it may allow inflation to run above its 2 percent target, raising concerns that monetary accommodation will stay loose even as they hike rates. The U.S. central bank held interest rates steady and, in a statement, following the end of a two-day policy meeting said that inflation had “moved close” to its target 
 
The greenback has been bolstered in recent weeks by the expectation that the Fed will continue to raise rates while other central banks, including the European Central Bank, are seen as taking longer to normalise monetary policy.
 
The ADP non-farm employment change estimate revealed companies in the US added more than 204,000 workers for a fifth straight month in April, signalling the job market remains strong. Despite rising trade tensions, more volatile financial markets, and poor weather, businesses are adding a significant number of jobs per month.

GBP

The Pound strengthened yesterday as better-than-expected construction PMI data calmed investors after a sell-off that took the currency five percent lower against the dollar in two weeks. Data showed British construction activity rebounded faster than expected last month with housebuilding leading the way after succumbing to the beast from the east in March. Construction had dropped sharply as a result of the blizzards brought to Britain, however the latest health check showed construction – which accounts for 6% of the economy – returning to growth in April.
 
With the dollar rallying and a weak manufacturing survey published on Tuesday, sterling had tumbled to its worst level since mid-January, extending a bruising fortnight for the pound which has seen a sudden collapse in rate rise expectations for May.
 

Key Announcements

09:30 – GBP – Services PMI is forecast to increase to 53.5
 
15:00 – USD – ISM Non-Manufacturing PMI is expected to fall to 58.1