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Market Update

EncoreFX’s daily market updates are written by our experienced and professional dealing team.

Fed Expects to Halt Balance Sheet Reduction By Year End

Published February 21, 2019

The Kiwi opens slightly lower this morning after the US Federal Reserve’s January meeting was seen less dovish than expected.

Fed Eyes End to Balance Sheet

Minutes from the Federal Reserve meeting this morning showed majority of policymakers were in agreement to slow or end reductions to its USD 4 trillion balance sheet this year. Fed policymakers were unclear on what adjustments to rates might be necessary later this year with “several participants arguing that rate increases might prove necessary only if inflation outcomes were higher than in their baseline outlook”. Doubts remain on the future of rate hikes, with markets increasing the odds of the next move being a cut early next year.

Australian Wage Data Mixed

The Australian Bureau of Statistics (ABS) report released yesterday showed annual wage growth was subdued at 2.3% and in line with forecasts. The wage price index rose 0.5% in Q4, missing expectations of 0.6% and down 0.1% on the previous quarter. In more positive news, the private sector released the fastest pace of wage growth in 5 years. The RBA does not see core inflation returning to the target range of 2-3% through to 2021, with markets pricing in more than a 50% chance of a rate cut later this year.

Focus will now shift to the Australian unemployment numbers released at 1.30pm today.

GBP Falls as More UK Lawmakers Leave PM May’s Party

Three UK Conservatives have left Prime Minister Theresa May’s party overnight over what they called the government’s “disastrous handling of Brexit”. This now brings the total defectors to 11 at time of writing and could undermine May’s Brexit strategy where she is currently in Brussels trying to rescue her Brexit deal. The pound initially fell on the news, however has since recovered as Spain’s foreign minister commented to Bloomberg that a revised Brexit accord was being “hammered out”.