It’s Risk on with a Dollar Bounce Ahead of the Healthcare Vote

The FED delivered a more hawkish than expected statement on Wednesday and the timing couldn’t have been better with U.S service sector activity picking up going into the 2^nd quarter, the only concern over the statement having been whether the FED would brush aside the weak growth in the 1^st quarter or raise concerns over the economic outlook for the quarters ahead.

It was job done as far as the Dollar bulls are concerned, with the FED’s view that the weakness was transitory good enough to provide appetite for the Dollar and riskier assets, with the Dollar on the bounce going into the European session.

It’s a heavy day on the economic calendar with April service sector PMI figures scheduled for release out of the Eurozone and the UK.

Market sentiment towards the Eurozone economy has certainly provided support for the EUR, but with the FED’s latest FOMC statement and the probability of a June rate hike rising to 90%, it’s hard to compete against the Dollar.

Things may not be completely plain sailing for the Dollar through the day however, with key stats scheduled for release out of the U.S today including prelim 1^st quarter nonfarm productivity and unit labour cost figures, together with March trade data and factory orders, though should unit labour costs bounce in line with forecasts the Dollar will likely remain on the front foot ahead of a healthcare vote expected to take place today, the FED’s view on the economy easing some of the anxiety over weak figures from the 1^st quarter.

The U.S administration has been under the microscope of late and the direction of the Dollar has reflected the failings of the administration being able to get passed the house. The general consensus is that there are now enough votes to get the repeal bill through, which will more than likely be well received by the markets, taken as a sign that the administration is finding its feet, with tax reforms expected to follow.

With the markets focusing on this morning’s stats and whether service sector activity will be on the rise in April, the pound will likely be under greater scrutiny, the services sector a key contributor to the UK economy. Manufacturing and construction PMI figures were supportive amidst the noise over Brexit, the only question now being whether the services sector was also able to recover in April. Forecasts are for a slight easing, which could give the pound a boost should the numbers surprise, as was the case with the manufacturing figures released earlier in the week.

At the time of the report, the EUR/USD stands at $1.08941, with the EUR giving up gains from the Asian session, with the Dollar Spot Index up 0.17% at 99.381, while cable is down just 0.03% at $1.28631, direction for the pound to come with the service sector PMI scheduled for release shortly, while the EUR is likely to find some support off the back of today’s PMI figures, the only stat to look out for being March retail sales numbers for the bloc.