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The Greenback must be enjoying Star Wars day as the bullish Force was stronger after the Fed stayed confident about their upbeat economic outlook while the U.S. economy printed strong leading jobs indicators.

  • FOMC decided to keep interest rates unchanged at 0.75-1.00%as expected
  • FOMC: Labor market continues to strengthen, business investment firmed
  • FOMC: Inflation running close to 2% objective, will stabilize in medium-term
  • FOMC: Slowing growth in Q1 2017 just transitory, economic activity to expand at moderate pace
  • ADP non-farm employment change up by 177K vs. 175K forecast, 255K previous
  • U.S. ISM non-manufacturing PMI jumped from 55.2 to 57.1 vs. 52.5 consensus
  • U.S. crude oil inventories down by 0.9 million barrels
  • U.S. lawmakers to vote on healthcare bill this Thursday

Major Events:

FOMC shrugged off Q1 growth slowdown

So much for expecting the Fed to temper its hawkish bias after seeing that Q1 GDP miss! Based on the FOMC statement, it looks like policymakers are still confident that the U.S. economy can keep growing and that inflation can hit its 2% target soon.

In their May meeting, Fed officials assessed that slowing growth in Q1 was just transitory and that the economy can resume expanding at a moderate pace. Policymakers also mentioned that inflation continues to advance towards their 2% goal and that it will stabilize at this level in the medium-term.

U.S. central bankers acknowledged that the rise in household spending was modest but affirmed that fundamentals supporting the consumer sector remain solid. They also noted that business investment firmed.

When it comes to balance sheet adjustments, the FOMC statement merely contained a paragraph on how they plan to maintain its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities. It also indicated that they plan on carrying on with this “until the normalization of the level of the federal funds rate is well under way,” adding that it will help maintain accommodative financial conditions.

Upbeat U.S. jobs indicators

It looks like dollar traders are getting their hopes up for a solid NFP reading as a couple of leading employment reports printed stronger than expected results.

The ADP non-farm employment change report churned out a 177K increase, slightly higher than the estimated 175K reading but still lower than the previous month’s figure at 255K, which was downgraded from the initially reported 263K figure. This signals that Friday’s jobs release could see similar results, with a slightly larger than expected increase in April hiring and a potential downgrade in earlier data.

Meanwhile, the ISM non-manufacturing PMI printed a surprise jump from 55.2 to 57.5 to reflect a stronger pace of industry expansion versus the estimated rise to 56.1. Underlying data indicated that the jobs component dipped from 51.6 to 51.4 to reflect a bit of a slowdown. Indices for business activity, supplier deliveries, inventories, and prices all posted gains.

Major Market Movers:

USD

The Greenback was able to bring sexy back upon seeing hints of a strong NFP figure and feeling assured that the Fed can be able to hike rates two more times this year.

USD/JPY rallied from 112.21 to a high of 112.81, USD/CHF popped back up from a low of .9897 to a high of .9947, AUD/USD slumped from .7474 to .7415, and NZD/USD is back below the .6900 handle.

Watch Out For:

  • Japanese banks closed for the holiday
  • 2:00 am GMT: Australia HIA new home sales (0.2% previous)
  • 2:00 am GMT: New Zealand ANZ commodity prices
  • 2:30 am GMT: Australia trade balance (3.33B AUD expected, 3.57B AUD previous)
  • 2:45 am GMT: Chinese Caixin services PMI
  • 4:00 am GMT: RBA Governor Lowe’s testimony