The pound has steadied in the Wednesday session, after recording sharp losses in the Wednesday session. In North American trade, GBP/USD is trading at 1.3603, down 0.07% on the day. On the release front, British Construction PMI improved to 52.5, above the estimate of 50.5 points. Over in the US, ADP Nonfarm Payrolls dropped to 204 thousand, compared to 241 thousand a month earlier. Still, this beat the estimate of 200 thousand. Later in the day, the Federal Reserve will set the benchmark interest rate and issue a rate statement. On Thursday, Britain releases Services PMI, and the US will publish two key indicators – unemployment claims and ISM Non-Manufacturing PMI.
The pound’s woes continue, as the US dollar flexes its muscles against its major rivals. The pound dropped below the 1.36 line on Tuesday, the first time that has happened since early January. Investors have not taken kindly to soft British numbers. GBP/USD dropped sharply on Friday after GDP posted a negligible gain of 0.1%, and there was a repeat performance on Tuesday, as Manufacturing PMI missed the estimate and dropped for a fifth straight month. The poor performance of the economy in the first quarter has dampened expectations that the BoE will raise rates at next week’s rate meeting, with the odds of a hike plunging to 20%, compared to 90% at the beginning of April. Most analysts expect the BoE to delay a rate hike until the second half of the year, with August or November being the most likely months for a rate hike.
What can we expect from the Federal Reserve? At the March policy meeting, policymakers raised rates for the first time in 2018, and are expected to remain on the sidelines at today’s meeting. Analysts will be keeping a close eye on the rate statement for clues about future rate hikes. Although the Fed is currently projecting three rate hikes in 2018, there is growing sentiment that the Fed will bump this up to four increases. The CME Group has priced in a quarter-point hike in June at 93% and one scenario is that the Fed will keep raising rates once each quarter – in June, September and December. Higher inflation has raised speculation that the Fed will consider raising its rate hike forecast. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures price index, hit the Fed’s target of 2% inflation for the first time in a year in March.