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Powell says Fed ready to act to sustain US economic growth

The Fed chair has promised to sustain US expansion, while Trump has pledged a "phenomenal" trade deal with the UK.

Powell says Fed ready to act to sustain US economic growth

Jerome Powell yesterday, 4 June signalled an interest rate cut might be “warranted soon”. The Federal Reserve chair also suggested the current rate might be “inappropriately high” and the Fed would “act as appropriate”, if escalating trade tensions with China and Mexico begin to hamper US economic expansion.

Markets interpreted his comments as dovish, while stock markets and bond yields rallied, with the Dow Jones rising by more than 500 points – its second best day in 2019. The Dollar fell on lower demand among investors as the chances of a rate cut in July increased. GBP/USD rose by 50 basis points, trading above $1.2700 for the first time in over a week.

Donald Trump also helped the Pound, saying in a joint press conference with Theresa May that the US was ready to sign a “phenomenal” trade deal once the UK has left Europe. He also said a bilateral could double or triple the volume of transatlantic trade, as long as there was no limit to the scope of negotiations.

Key releases

The Purchasing Manager’s Index (PMI) data for the UK services sector is the main release today. The services sector makes up 76 per cent of the economy, so we will watch the release closely. The reading of 50.4 for May showed that confidence had grown since April when it came in at 48.9, having missed expectations. This month’s release is forecast to show a small increase to 50.6. If it exceeds or misses expectations, we can expect volatility in the Pound.

Apart from economic data, ahead of the European Central Bank’s meeting and interest rate decision tomorrow, investors will heed to comments from the Bank of England’s David Ramsden this morning and the Fed’s member Richard Clarida this afternoon for any further clues on the monetary policy path on either side of the Atlantic.

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