After the fireworks caused by the last Fed meeting (more notably the press conference), last night was a very sedate affair in comparison. Despite the disappointing first quarter GDP data seen earlier in the day (annualised growth of just 0.1%), the Fed kept to its previous course of reducing tapering by USD 10bln. At the same time, the changes to the accompanying statement were minor, with nothing for Fed watching to jump on one way or the other. This was reflected in the minimal reaction seen on the dollar.
From some angles, the start of a new month bodes well for the dollar. The lack of dollar reaction to what was a fairly disappointing GDP number yesterday reflects the extent to which the market is looking forward and focusing more on the better data that has emerged through most of April. The past three May’s have all been positive for the dollar, the only month for which this holds true over this period. From the other side, there is also a decent chance that we see more concrete action from the ECB this month, either in terms of rates or other policy measures. Whilst the longer-term effectiveness of this on lowering the currency can be debated, the short-term reaction is nevertheless likely to be negative for the single currency.
For today, the PMI data in the UK is the early focus, where the headline series is seen holding near steady at 55.4. Cable continues to push near to key upside resistance levels ahead of the 1.70 area. Several European countries have a Mayday holiday today, which could keep ranges narrow on the FX side, with US data at 12:30 GMT the main risk to this, together with speech by Fed’s Yellen at the same time.