The FOMC meeting is clearly the key FX event of the day. The market is not pricing a rate hike, the likelihood of which is estimated at below 15%. Markets already feel more confident for a rate hike at the next meeting in June and today’s meeting is unlikely to change anything. The Fed should likely show its optimism in its statements. The inflation target of 2% was beaten in February before falling again below this level.
We expect a clearer assessment of the US economic situation after the recent lacklustre data (GDP and personal consumption in particular). The non-farm payroll employment for March disappointed (98k new jobs) after strong data in February (220k). In March, industrial production also saw its biggest decline for the last two years. We remain suspicious on Fed rate tightening as we believe that the state of the US economy is overestimated. For example, the number of bankruptcies in the US in 2017 is already higher than all bankruptcies in 2016.
On top of that, the second-hand car market is collapsing as the losses on auto credit subprime have reached their highest level. Last but not least, 60% of Americans - according to a CNN poll - do not have a $500 emergency fund. This is why we maintain our bullish position on the EURUSD, despite political uncertainties in Europe.
By Yann Quelenn