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FOMC leaves rates unchanged as expected; SEPs show Fed to keep rates on hold through 2020

Markets Torn as Syria, Fed Outlook Vie for Influence (Webinar)

Markets Torn as Syria, Fed Outlook Vie for Influence (Webinar)

2017-04-10 07:56:00
Ilya Spivak, Sr. Currency Strategist
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Talking Points:

  • Syria crisis threatens risk appetite trends after US airstrike
  • Yellen speech, US inflation data may boost rate hike outlook
  • UK and EZ data may go unnoticed, BOC threatens Loonie

What will drive the markets in the second quarter? See our forecasts to find out!

The US Dollar soared after the March set of official employment figures hinted the economy is drawing close to so-called "full employment", heating up Fed rate hike speculation. On-month payrolls growth proved to be considerably slower and the jobless rate fell even as participation and wage inflation held strong.

Fed Chair Janet Yellen will probably reiterate an intent to hike rates and perhaps even hint at balance at the imminent start of balance sheet reduction in a scheduled speech. Meanwhile, core inflation is expected to tick up to 2.3 percent. That may keep the hawkish narrative in play and see the greenback well-supported.

The outbreak of risk aversion is an ever-present threat however as markets reckon with the aftermath of last week's surprise US missile strike on Syria. Secretary of State Rex Tillerson will meet his G7 counterparts to start the week and then travel to Russia. That creates ample opportunity for a scary headline to spook investors.

Otherwise top-tier data from the UK and the Eurozone may pass with little fanfare considering the ECB and BOE locked in wait-and-see mode. The Canadian Dollar may suffer if the BOC remains unambiguously dovish despite an uptick in inflation and stronger oil prices.

The Australian Dollar may find less in the local jobs report than in Chinese CPI figures. The RBA seems to have set a high bar for labor-market improvement before it is prepared to consider rate hikes. Meanwhile, firming inflation may drive bets on steeper PBOC tightening, weighing on regional growth prospects and hurting the Aussie.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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