- The Pound Sterling struggles to extend upside above the immediate resistance of 1.2560 against the US Dollar. Market sentiment turns cautious as investors shift focus to the Federal Reserve’s interest rate decision, which will be announced on Wednesday. S&P 500 futures are down in the European session, exhibiting a decline in investors’ risk appetite. Investors will keenly focus on the interest rate guidance as policymakers are expected to vote for holding interest rates steady in the range of 5.25%-5.50%.
- Inflation measures for March have indicated that price pressures remain persistently higher due to robust consumer spending and tight labor market conditions. This would force the Fed to support the argument of keeping interest rates higher for a longer period. Fed policymakers are expected to continue with their current monetary policy framework until they get sufficient evidence that inflation will sustainably return to the desired rate of 2% target.
- The US Dollar Index (DXY) rebounds to near 106.00 on expectations that the Fed will maintain a hawkish guidance. Before the Fed policy, investors will watch the ADP Employment Change and the ISM Manufacturing Purchasing Managers Index (PMI) data for April. US private employers are forecasted to have hired 179K job-seekers, slightly lower from the prior reading of 184K.
- The US ISM PMI is expected to remain above the 50.0 threshold that separates expansion from contraction but will drop slightly to 50.1 from 50.3. On the same, the survey by S&P Global for April showed that the factory data fell below the 50.0 threshold. The agency reported a sharp decline in the scale of production and new orders due to inflationary pressures, weak demand and sufficient stock holdings at customers.
- Later this week, the US Dollar will be guided by the Nonfarm Payrolls (NFP) report for April, which will be published on Friday.
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