Fed meeting fails to offer fillip for US economy

•  US flash GDP prints lamentable
•  UK jobless rates holding steady
•  NFP figures eagerly anticipated

Last night's Federal Open Market Committee (FOMC) meeting was a non-event and many had expected it to be so. Not wanting to disappoint, the US Federal Reserve maintained its linear reduction of QE by a further USD 10bn, bringing the pace of monthly purchases down to USD 45bn per month. Should this stay on course, QE, as we presently know it from the US, will be a distant memory come November this year.

Assuming this is the case, I believe many of you will still be hard-pressed about being long of the USD. I’ve been harping on for quite some time now about how I don't believe in the underlying strength of the US economy. If I needed any further proof of this, well, just take a look at yesterday's flash GDP prints: complete and utter rubbish. They were only made to look remotely decent by the fact that so much money was spent on Obamacare.

Now, don’t get me wrong, I’m all for universal healthcare, and feel that even more money should have been spent on this particular endeavour. My point, however, is that if this is what’s propping up an otherwise disastrous GDP, well...

Do you get my point, folks? Consider the "six-month" slip of US Federal Reserve chairman Janet Yellen. Well, she might have genuinely believed it at the time but when the spring data starts to mirror the horrible winter data from the US, the Fed can end QE but it still won’t be any closer to raising rates or perhaps, even worse, avoiding another recession (technical or otherwise).

With a withering US economy as the backdrop, matters in the UK and in Australia start to look a whole lot better by comparison. Both of these nations have what the US lacks: inflation. Interest rates are about to start on a tightening path, there are healthy GDP prints and unemployment rates are either holding steady with a negative bias (falling) or genuinely coming lower already (as is the case in the UK). This compares most favourably to the   US where, on this last point, the unemployment rate is being window-dressed as a result of historically low participation rates and poor statistical methodology. 

This all brings me to this morning’s print of UK manufacturing PMI and another record-beater release. Fair enough, I say, and it's hard to argue the rather strong rise in the currency. I have already said on previous occasions that I’m bullish on the Cable and that 1.7000 is well on its way. We’ll see it soon enough but what happens above there, well, that’s what I like to call the “Bus Driver” trade. The market will get increasingly longer and longer at rather inflated and unjustified levels and then we shall be at 1.7080/1.7150. All of a sudden, the air comes out of that balloon. Do be careful out there, folks. There is good reason to like the sterling but be wary of where and how you show your affection.

With most of Europe out for the May Day holiday, we’re relying upon more US data this afternoon to give the market some sort of activity boost ahead of tomorrow’s NFP release. Later today, we shall see weekly claims as well as manufacturing PMI. All of these still lead me to want to be long the JPY and perhaps for now against the USD. Things are making it harder to be convincingly long of AUDUSD and short of USDJPY.

For the record, I retain my bullishness for sterling and likewise for AUD. I have tepid enthusiasm for the EURUSD, bearishness for the USD (in case you hadn’t noticed) and a keen sense of wanting to get long of JPY (either directly against the USD or via crosses) at better levels.

In the interim, helmets on and good luck out there.

Ken Veksler is the director and chief investment officer of Accumen Management, a London-based boutique asset management and foreign exchange consultancy