Fed set to hike rates again.

The Federal Reserve will announce its interest rate decision on Wednesday with strong expectations that the central bank will announce an interest rate of 50 basis points to 1.00%. Futures markets indicate there’s a small possibility of a larger 75 basis points increase. The rhetoric on inflation will be important with forward guidance from Chair Powell also a key element for all asset classes.

Traders will be looking for hints over the extent of further rate hikes over the next few meetings.

Markets will also be looking for an announcement on starting to shrink the balance sheet.

According to JOLTS data, the number of job openings increased to 11.55mn for March from 11.34mn previously which was above expectations and continued to signal a tight labour market which will maintain pressure for a tighter monetary policy.

The dollar has consolidated ahead of the Federal Reserve policy decision. There are expectations of a notably hawkish stance, but a series of aggressive rate hikes have been priced in which could lead to profit taking on long positions.

Volatility will inevitably spike higher after the policy decision.

US bond yields declined on Tuesday with the 10-year yield retreating to lows around 2.92% after the test of 3.00%. There was, however, a renewed advance to around 2.97% in Asia on Wednesday and moved higher again to touch 3.00% in early Europe.

The UK PMI manufacturing index was revised to a final reading of 55.8 from the flash reading of 55.3. Growth in new orders growth and there was significant weakness in export orders amid weak demand from the Euro area which was related in part to underlying Brexit issues.

There was further strong upward pressure in costs with no companies reporting a decline in prices paid for the first time in the survey’s history while output charges increased at the fastest rate on record. Overall business confidence dipped to a 16-month low.

Chinese markets remain closed for a holiday on Wednesday which dampened activity in Asia, but unease over the outlook remains high, especially with Beijing announcing that schools will be closed for an additional week.

Markets remain very uneasy over the implications for demand and global supply chains.

A decline in US yields triggered a temporary setback for the US dollar, but selling was very limited and yields moved higher on Wednesday. The Euro continued to hit selling pressure on rallies despite pressure for an ECB rate hike. Underlying confidence in the Euro-zone outlook remained fragile. EUR/USD advanced to highs around 1.0565 before fading again to near 1.0500.

Yen moves were dominated by moves in US bond yields. USD/JPY found support below 130.00 and traded just above this level on Wednesday

The Swiss franc retreated from intra-day highs as global central banks tightened policy. USD/CHF hit 26-month highs at 0.9800.

Sterling was unable to hold gains as underlying UK sentiment remained negative. GBP/USD again tested support below 1.2500 and traded below this level on Wednesday with lows near 1.2470.

Commodity currencies failed to hold intra-day highs but did demonstrate some resilience. AUD/USD traded just above 0.7100 on Wednesday. USD/CAD peaked close to 1.2900 before a retreat to 1.2830.

Economic Calendar

07:00German Trade Balance(MAR)9.6B11.5B
08:30EUR German PMI Services(APR)
08:45Italy - Markit/ADACI Svcs PMI(APR)52.1
08:50France - Markit Serv PMI(APR)57.4057.4
08:55EUR German PMI Composite(APR)54.6
09:00IPC-Fipe Inflation Idx*(APR)1.28%
09:00Euro-Zone PMI Composite(APR)54.5
09:00Euro-Zone PMI Services(APR)54.8
10:00Euro - Zone Retail Sales (M/M)(APR)0.60%0.30%
10:00Euro - Zone Retail Sales (Y/Y)(APR)4.80%5.00%
13:15USD ADP Employment Change(APR)455K
13:30USD Trade Balance(MAR)-88.50B-89.70B
13:30CAD Trade Balance(MAR)2.66B
14:45USD Markit PMI Composite(APR 01)58.5
14:45USD Markit Services PMI(APR)58.9
15:00USD ISM Non-Manufacturing PMI(APR)58.458.3
19:00USD ISM Non-Manufacturing PMI(APR)
19:00FOMC Interest Rate Decision
19:00FOMC Press Conference

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.