- The Pound Sterling corrects sharply to 1.2480 against the US Dollar as investors brace for the Federal Reserve’s monetary policy decision. The CME FedWatch tool shows that traders see interest rates remaining unchanged in the range of 5.25%-5.50% for the sixth time in a row. Though no action is expected on borrowing rates, investors will keenly watch for the interest rate outlook by looking at the Fed’s statement and Chairman Jerome Powell's press conference.
- The Fed is expected to support the “higher for longer interest rates” argument as a recent batch of inflation indicators has suggested that progress in inflation declining to the 2% target has stalled.
- After higher-than-expected Consumer Price Index (CPI) and core Personal Consumption Expenditure Price Index (PCE) for March, Q1 Employment Cost Index also beat estimates by a strong margin. The index rose by 1.2%, higher than the consensus of 1.0% and the prior reading of 0.9%. Higher Employment Cost is generally driven by strong wage growth, which leads to an increase in consumer spending and fuels inflationary pressures.
- Before the Fed’s policy meeting, investors will keenly focus on the ADP Employment Change and the ISM Manufacturing PMI data for April, which will be released in the early New York session. The consensus shows that private employers recruited 175K jobs, slightly lower from 184K in March. The Manufacturing PMI is forecasted to drop to the borderline of 50.0 in April from 50.3 in March. The 50.0 figure is the threshold that separates expansion from contraction. A weaker-than-expected Manufacturing PMI will indicate that US factory activity contracted in April.
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