As expected, the Fed kept its interest rate and balance sheet policies unchanged on Wednesday evening. In the statement, the committee expressed more confidence about hitting the 2% inflation target, without indicating any need to waver from its path of gradually tightening monetary policy. Barclays Research continue to expect the next 25bp rate hike in June.
Overnight, Asian equities were mixed, further to weakness in US stock markets. UST yields were broadly stable and the USD came off initially before recovering somewhat.
Having initially reacted positively to the Fed outcome, EURUSD later reversed and traded to new recent lows (1.1938, Bloomberg) overnight. 1.1930 provides meaningful support, with a break through potentially opening up a broader move towards 1.1715. Resistance 1.2035, 1.2085 ahead of 1.2150/60.
In the UK, Barclays Research expect the UK April services PMI to bounce back to 53.0 after the sharp drop seen in March, caused partly by weather-related weakness. Data will be keenly watched with the BoE traditionally placing high importance on survey data and further to the disappointing manufacturing PMI data released on Tuesday.
Markets will also have one eye on local elections in the UK today, though with pollsters already expecting PM May’s Conservative Party to suffer losses, only a significant surprise would be likely to influence the pound.
GBPUSD support comes around 1.3535 (200 day moving average) ahead of 1.3450 YTD low area, with resistance at 1.3670 ahead of 1.3725.
Elsewhere, in the US we look for the ISM non-manufacturing index to moderate slightly and we expect euro area “flash” headline HICP inflation to remain unchanged at 1.3% in April.