s expected, the Fed kept rates unchanged this month. Policymakers acknowledged the recent deterioration in economic data, although claimed that the slowdown experienced in the first three months of 2017 would be “transitory”. They also took the market by surprise by completely overlooking the latest fairly underwhelming nonfarm payrolls number, reiterating that the labour market in the US is continuing to strengthen.

Overall, the comments out of the Fed last night were exceedingly more hawkish than expected. We think the central bank is firmly on course to raise interest rates again at the next meeting in June. Markets are now pricing in a 93% probability of such an event, much higher than the 69% priced in before the meeting.

Earlier in the session, the latest ADP employment report boded well for this Friday’s much more significant nonfarm payrolls report. The private sector of the US economy added a solid 177,000 jobs in April, slightly higher than the 175,000 consensus. The non-manufacturing PMI also far outstripped estimates, further adding to speculation that the Federal Reserve could raise interest rates at a faster pace than expected this year.

Sterling dipped during Asian trading on Wednesday after rumours circulated that the final UK exit bill from the EU may amount to 100 billion Euros. While this was denied by Britain’s Brexit minister David Davis, the news kept the Pound mostly on the back foot throughout the London session.

Major currencies in detail

GBP

The Pound slipped during Asian trading yesterday, with Sterling failing to break through the psychological 1.30 barrier against the US Dollar.

Wednesday’s construction PMI was very encouraging, boding well for tomorrow’s services release. The index rose to 53.1 in April from 52.2, its highest level in four months. This week’s data suggests there are tentative signs that the UK economy may be picking up pace after a lacklustre start to the year that saw the economy grow by just 0.3% in the first quarter of the year. We expect the Bank of England to acknowledge as much when the central bank meets for its monetary policy meeting next week.

The services PMI is expected to show a modest slowdown in April when released this morning.

EUR

Preliminary GDP numbers for the first quarter came in right in line with expectations, with the Eurozone economy growing at a faster pace than that in the US. The economy expanded by 0.5% in the quarter, much higher than the annualised pace of 0.7% recorded in the US in the first three months of the year. In a further sign that the Eurozone economy was performing better than expected, fourth quarter growth was revised higher from 0.4% to 0.5%, despite the uncertainty created in the run up to this month’s French Presidential Election.

The monthly business activity PMI’s will be released in the Eurozone today. Retail sales are expected to have remained mostly flat month on month in March when released at 10am BST

USD

Economic news yesterday was largely positive in the US, with yesterday’s non-manufacturing PMI from ISM increasing to 57.5 from 55.2. On a similar note, the services PMI from Markit also rebounded to a two month high 53.1, although the Dollar was driven almost exclusively by the Fed announcement.

Economic data releases will be mostly second tier in the US today, with attention turning to Friday’s nonfarm payrolls release. The US economy is forecast to have created 180,000 jobs in April, which should be more than enough in our view to ensure another interest rate hike by the Federal Reserve when it next meets in June.