Tuesday, July 29, 2014

US GDP and Payrolls will inform the FOMC | Treasury note yield positive for USD

Later today, at 12:30 GMT, we will hear the US Federal Open Market Committee’s (FOMC) statement on monetary policy and its interest rate decision. Albeit that they come in the onset of the holiday season, these events are eagerly awaited on this occasion. There is a palpable sense out there that the US dollar is coiled, ready for action.

There will be no press conference after the FOMC statement today, so the words themselves will be closely scrutinised. We will then have to wait for the release of the minutes of the meeting, later in the month of August, to find out the mind-set of the various members.

In the meantime the market is looking for US Gross Domestic Product (GDP), which will also be released today, to be close to 3% year-on-year and for employment growth, to be provided in the Non-Farm Payrolls report on Friday, to be at or in excess of 230,000 new jobs. We will also have the ADP payrolls report today but this private firm’s figures have not been particularly effective as a leading indicator of the NFP outcome in the past, so they may not be given particularly high credence.

Treasury note yield positive for USD

Dow Jones Newswire has reported that the US 2-year Treasury note auction priced with a yield of 54.4bp on Monday last, the highest seen since May 2011. This is significant, as it indicates that the fixed income market, which takes a middle to long term view, is starting to seriously consider the possibility of interest rate rises stateside.

Any move or indication with regard to lessening the time between now and a rise in US interest rates will have the effect of strengthening the greenback. On the other hand, as our economist friends might put it, a disappointment in the numbers expected could lead, at least in the short term, to a sell-off of the US unit.

No comments:

Post a Comment