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Fed’s hawkish cut – BOE next

Fed’s hawkish cut – BOE next

GBP New UK Brexit negotiator David Frost met EU counterparts for the first time and reiterated the party line that Brexit would happen on October 31st. EU sources maintained that the Withdrawal Agreement would not be re-negotiated and that the Irish backstop couldn’t be removed.

The Pound rose partly due to some short positions being closed and some Sterling demand into month-end as it moved back above 1.2200 on the Dollar. Sterling also recovered against the Euro with a push to near 1.0990 before stabilising. Sterling retreated to the 1.2120 level on the Dollar after the Fed interest rate decision. Markets are expecting the Bank of England to hold interest rates at 0.75% today, with the accompanying statement and inflation report significant for directing Sterling sentiment.


The Federal Reserve (Fed) cut interest rates by 0.25% to 2.25%, in line with consensus expectations. Regional Presidents George and Rosengren dissented as they preferred to keep rates on hold. According to the Fed, job gains were solid and personal spending has picked up, but investment remained soft while underlying inflation remained below 2.0%. The FOMC will continue to monitor the implications of incoming information and act as appropriate to sustain the expansion with a strong labour market and inflation near the symmetric 2.0% target.

The Fed also announced that the balance sheet normalisation process will be concluded in August, two months earlier than expected, but rhetoric dominated the reaction. Chair Powell stated that weak global growth trade uncertainty and muted inflation had concerned the central bank. Disinflationary pressures persist and could lead to falling inflation expectations. Powell also stated that the move was a mid-cycle adjustment rather than the start of a rate-cutting cycle which jolted markets with rate expectations called back.

There were further dollar gains to 2-year highs and the Euro slid to 26-month lows below 1.1050. President Trump criticised the Fed and stated that it should have been much more aggressive, but the dollar maintained a strong tone with the Euro near 1.1050.


The Euro is on the defensive against the Dollar, courtesy of not-so-dovish rate cut by the Federal Reserve. The currency pair is currently trading at 1.1040, having hit a low of 1.1034 in the early hours of this morning. The lowest level since May 2017.
According to the flash reading Euro-zone GDP data increased 0.2% for the second quarter which met market expectations. The CPI inflation rate declined to 1.1% from 1.2% previously, above expectations of 1.0% while the core rate declined to 0.9% from 1.1%.
There was no shift in expectations following the data with markets continuing to expect the ECB to cut interest rates at the September policy meeting while German yields declined which undermined potential Euro support.
The US Dollar is solidly bid and could continue to push higher during the day ahead, as the US Federal Reserve cut rates by 25 basis points on Wednesday, but dashed hopes of further easing by referring to the rate cut as a mid-cycle adjustment.

Data to watch:

12.00pm BoE Interest Rate Decision
12.30pm BoE’s Governor Carney speech
15.00 ISM Manufacturing PMI (Jul)
23.50pm BoJ Monetary Policy Meeting Minutes

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