Risk of the first US rate hike being pushed out to Q4 has increased

Further signs that US economic activity weakened in Q1 and the increasing likelihood that the start of policy tightening will be delayed until at least September have resulted in a fall in the US dollar over the past month against other main currencies, as well as a decline in Treasury yields. 

The rebound in US retail sales in March did not fully compensate for weather-related weakness earlier in the year, while manufacturing output contracted in Q1 for the first time since the recession, likely affected at least in part by past dollar appreciation. US nonfarm payrolls surprised on the downside in March, rising by only 126k, while average hourly earnings growth confirmed a flat rather than rising trend in recent months.

"We have left our main policy rate forecasts unchanged this month, but acknowledge that the risk of the first US rate hike being pushed out to Q4 has increased. Our central view remains that the Fed starts tightening policy in September, with the upper bound of the policy rate at 0.75% by year end." - Lloyds Bank