The US Dollar consolidated gains yesterday, as the markets brace for the much-anticipated Fed policy meeting and interest rate decision later today. Many are convinced the US central bank will cut rates for the first time since 2008. Futures markets have priced in a cut at 100 per cent probability, with the likely outcome of a 25-basis-point cut. However, much of the focus will be on whether or not the Fed will indicate future plans for policy easing.
An interest rate cut in the US has been a key topic for some months now as the Fed highlighted the need to ward off trade and inflationary pressure which have affected much of the broader world economy. Many economic forecasters now share the view of the futures market in that policy easing is highly likely, with Fed Chair Jerome Powell doing little to diffuse these conversations.
The Fed has made no secret of its desire to offset the risks from trade tensions, which are curtailing manufacturing activity and business investment and slowing global growth. Additionally, fears of inflationary pressure worldwide are causing the Fed to act before rather than after the event, which some see is a precautionary move.
In China, data released overnight showed factory activity shrank for the third month in a row, highlighting the pressure the Chinese economy is under due to the ongoing trade war which is affecting investment and business profits.
Chinese manufacturing Purchasing Manger’s Index (PMI) data came in at 49.7 against the forecast of 49.6. However, any reading below 50 still indicates contraction. The latest weak reading adds to the global growth risks and further underlines the necessity felt by policy makers to ease policy.
In the UK, the Pound ended Tuesday slightly higher, having initially dropped to the 28-month low of 1.2120 earlier in the day. Political fears continue to dominate the headlines and market sentiment towards Sterling is negative as investors are increasingly anxious about the threat of a no-deal Brexit in October.
Today, the Eurozone will release its GDP and CPI figures at 10:00 (GMT), followed by US ADP employment data at 13:15. However, the highlight will be is the Federal Open Market Committee (FOMC) at 19:00, followed by the Powell press conference at 19:30.
Dollar on front foot as Sterling struggles
ECB holds rates firm
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