Trading was cautious in Wednesday’s European session as investors await the outcome of three central bank meetings due in the next 12 hours. The US Federal Reserve will be the first to announce its decision at 18:00 GMT and the dollar was struggling to find direction ahead of this key event.
The greenback firmed against the yen during the course of the day but lost ground against the euro. Expectations that the Bank of Japan will announce some new measures at its meeting tomorrow have kept the yen under pressure this week. The dollar edged higher from a low of 111.02 yen earlier in Asian trading to a high of 111.39 yen in European session.
Against the euro, the dollar fell slightly as most analysts do not expect a major shift in the Fed’s recently adopted dovish outlook just yet. The single currency climbed to an intra-day high of 1.1333 dollars at the start of European trading but had eased slightly to 1.1323 dollars in late session.
The euro was also helped by better-than-expected German GfK consumer sentiment data. The May reading of the GfK consumer sentiment survey rose to 9.7 from 9.4 in April, beating forecasts that it would stay unchanged.
Another central bank that will announce its decision within hours of the Fed’s announcement is the Reserve Bank of New Zealand. The New Zealand dollar saw some sharp moves in the build up to the RBNZ’s policy announcement due at 21:00 GMT on Wednesday. The RBNZ cut its cash rate by 25 bps to 2.25% only last month and most economists expect the central bank to hold rates at its April meeting. However, futures markets have priced in a 48% chance of a rate cut despite recent stronger-than-expected inflation and GDP data.
The kiwi was 0.6% weaker against the US dollar at 0.6855, having rebounded slightly from an earlier low of 0.6838.
Meanwhile, the kiwi’s antipodean counterpart, the Australian dollar was stuck near the day’s lows at around 0.76 following an unexpected drop in Australian quarterly inflation. The surprise poor CPI reading raised expectations that the RBA may cut rates again soon, putting a brake on the aussie’s impressive rally so far this year.
Also seeing some volatility on Wednesday was the British pound, which see-sawed before and after the release of the preliminary UK GDP data for the first quarter. UK GDP expanded by 0.4% quarter-on-quarter in the first three months of the year, in line with estimates. The year-on-year rate came in slightly above estimates though at 2.1% versus forecasts of 2.0%.
Growth during the quarter was led entirely by the services sector as both industrial and construction output declined from the preceding three months.
Sterling dipped to 1.4544 dollars prior to the growth figures but later rebounded to 1.4618 as the data did not disappoint. However, it later retreated back below the 1.46 handle following some positive US data.
The US’s trade deficit with the rest of the work shrank to $56.9 billion in March, down from a deficit of $62.9 billion the prior month and above estimates of $62.5 billion. Also coming in above forecasts were pending home sales. US pending home sales rose by 1.4% in March, beating forecasts of a 0.5% increase.
In commodities, oil prices extended yesterday’s strong gains as WTI crude rose above $45 a barrel for the first time since November 2015, while Brent crude briefly topped $47 a barrel. However, a bigger-than-expected increase in US crude stocks for the week ending April 22 dragged US oil futures back below $44 a barrel in late European session. Gasoline stocks also rose more than forecast during the period but distillate inventories declined by more than expected.
