The weak May employment report has diminished the significance of Wednesday’s FOMC meeting, with the Committee now very unlikely to adjust policy or signal a move in June or July. There will still be significant information to digest, with market participants likely to focus on the dot plot evolution and to look for evidence that the Fed is becoming less confident in the economic outlook.
However, in general, the message is likely to mirror Federal Reserve Chair Janet Yellen’s Philadelphia speech, emphasising a need to wait and see whether the slowing in jobs growth is part of a broader deterioration, while still signalling an expectation that rate hikes will resume later this year.
On the data front, the May retail sales report on Wednesday ahead of the meeting is expected to show a modest rise in headline sales thanks to gasoline, but control group sales are likely to have contracted by 0.2% after surging in April. With May industrial production also likely to have contracted and the core CPI y/y rate expected to have slowed to a 2.1% rate from 2.2%, the releases this week are unlikely to be reassuring for those contemplating whether the May jobs report is signalling a broader slowing in activity.
We think the USD remains vulnerable against this backdrop, with EURUSD likely to recover towards 1.16 in the weeks ahead.
Copyright © 2016 BNP Paribas™, eFXnews™Original Article
