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Markets ponder need for US rate cut

While markets are weighing an interest cut in the US, MPs pass measures aimed at preventing forced no-deal Brexit, making it harder for next PM to suspend Parliament.

Centtrip: Markets ponder need for US rate cut

The Dollar continued to retreat overnight as the debate over an interest rate cut in the US entered a new chapter. The expectation is that the Federal Reserve will drop its benchmark rate at its monetary policy meeting at the end of July is virtually certain, with the markets pricing in at least a 25-basis-point cut.

Fed policymakers have identified a host of concerns they think could end what has been the longest US economic expansion on record. New York Fed president John Williams last night argued for pre-emptive measures to avoid dealing with low inflation later on, pushing the futures market to price a 50-basis-point cut at 70 per cent. The Fed’s preferred measure of price gains has been stuck at 1.6 per cent a year – below the 2 per cent target.

A rate cut from the Fed would be the first in over ten years since the financial crash, and many feel the current state of the US economy does not warrant a cut at all, let alone that of 50 basis points. Domestic US data point to a resilient economy, stock markets are booming, and inflation and retail sales data have all moved to the upside in recent weeks. Such an aggressive move is usually kept for underperforming economies and as such, this move may shock the market rather than bolster it.

In the UK, the Office for Budget Responsibility (OBR) claimed that public borrowing would double next year to £60 billion if the UK leaves the European Union without a deal. This claim is based on Britain entering a recession – something financial watchdogs have claimed is almost certain in the event of hard Brexit.

In Europe, newly elected European Commission President Ursula von der Leyen made a number of key statements outlining her intent in her new role. She claimed that the Brexit deadline could be extended beyond 31 October and that the UK must do “whatever it takes” to achieve an orderly Brexit. She also claimed she did not plan to depart from EU-fiscal rules and would keep sanctions on Russia, but wants “dialog at the same time”.

Today the UK will publish figures for public sector net borrowing, followed by US consumer confidence published by the University of Michigan at 16:00.

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