After Friday’s payroll figures we are likely to be looking ahead to a week where very little has changed and markets are still dominated by the will they won’t they nature of the central bank policy. With this in mind, and after a better than expected jobs report on Friday, all eyes will be on the FOMC meeting minutes for March, due for release on Wednesday evening.
Despite the rather volatile start to the year, March was expected to be the month that saw the Fed’s plan for four rate hikes in 2016 begin. The hawkish comments were to set the tone for the year and cement the Fed as the world leaders in monetary policy, leading their country from catastrophe 8 years ago, to full blown recovery by the end of the year. However as we now all know the doves have taken over, and Janet Yellen’s has taken her default position as queen of the doves, with rates now well and truly back on hold as “downward global risks” continue to threaten the stability of the economy.
There is no problem with caution in the light of uncertainty, however recent comments from a number of high ranking US policymakers shows that there are splits appearing in the camp, just how deep the splits are will becoming clear when we see how these policymakers voted on Wednesday evening.
What we must remember about the US economy is that recent numbers have not been bad, and still show that the economy could sustain further rate rises this year. However rate expectations of four hikes in the year always seemed a little too optimistic, even for the Fed. At the turn of the year expectations were for rates to be 1% by the next December, expectations now seem to be for at least half of that.
There has always been this obsession with getting back to what policymakers like to call “a sense of normality” within monetary policy, however for me this is the normality of a pre-2008 world, a financial world that no longer exists. So to dial back expectations for rates in 2016 is not necessarily a bad thing, however a division within the Fed could well be something to worry about. Fed funds futures are currently pointing to a 96% probability of no change in April, with September starting to look a little more favourable.
For the rest of the week we are looking a little quieter as last week seemed to hold all the cards its likely to be a little more subdued with some key data due for release, but with central banks on hold for a couple of weeks we are likely to see so muted reactions to some of the big numbers. All eyes will be on the upside level on EUR/USD yet again as the highs of 1.1438 are still the main sticking point for any rallies. GBP/USD is also sitting on a big downside level at 1.4210 with a break here seeing a break of a consolidation pattern which could see cable lower.