FX market outlook

The dollar was little changed against the yen and the euro as markets awaited the Federal Reserve to complete a two-day policy meeting later today. Many say it will be a non-event since the Fed is not expected to make any changes to interest rates and there will not be a press conference. But investors will look for any hints concerning a June rate hike in the statement that will be released.

Markets are currently giving a fairly high probability for a rate increase next month, although this could change if incoming US economic data softens. First quarter GDP was quite weak and now all eyes will be on Friday’s non-farm payrolls. Specific attention will be paid to the wage component.

The dollar was trading in a small range against the yen during the Asian session, pivoting around the key 112-yen level.

New Zealand released first quarter labour market data during the Asian session, which beat forecasts in all areas. The unemployment rate fell from 5.2% to 4.9%, which was the lowest unemployment since March 2009. There was a 1.2% growth in jobs in Q1 from the prior quarter after 29,000 new positions were created. The kiwi initially jumped versus the greenback after the data to hit a session high of $0.6968 but it soon eased lower to $0.6930.

The euro held onto gains made against the dollar during most of the Asian session to trade around $1.0930 before easing to $1.0915. Key risk events today include Eurozone flash GDP for the first quarter as well as the final TV debate for the French Presidential elections tonight.

Sterling remained above $1.2900 but dipped sharply in Asia from an early session high of $1.2947 in reaction to a Financial Times headline that the EU has revised the UK’s Brexit bill higher to 100,000 billion euros, which is double the initial estimate. Focus now turns to today’s UK construction PMI data for April.

In commodities, gold traded in a tight range around $1,255 an ounce, while oil prices remained higher today. WTI crude prices headed lower after jumping above $48 a barrel on Tuesday following the API report that showed US inventories fell by a more-than-expected 4.16 million barrels at the end of last week. Markets are now being cautious ahead of another industry report today from the EIA.