The Federal Reserve cut interest rates by 0.25%, in line with consensus forecasts.

The Federal Reserve cut interest rates by 0.25%, in line with consensus forecasts, but 2 members dissented. Chair Powell’s comments that it was a mid-cycle adjustment rather than the first of a series triggered a shift in expectation over further cuts.

The dollar gained strongly after Powell’s comments with the dollar index at 2-year highs. EUR/USD slid to 2-year lows below 1.1050 with USD/JPY at 2-month highs.

Sterling continued to be damaged by political concerns with GBP/USD re-testing 27-month lows near 1.2100. Commodity currencies demonstrated some resilience, but Scandinavian currencies retreated sharply with multi-year lows against the dollar.

Equity markets declined sharply following Powell’s comments while the US yield curve flattened. After advancing on a larger than expected inventory draw, dollar strength curbed oil prices.

Precious metals were also undermined by US currency strength with a sharp decline in gold.

The Federal Reserve 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%.

UK Brexit negotiator Frost held introductory meetings with EU counterparts and reiterated that the UK would leave the EU on October 31st. EU sources maintained their insistence that the Withdrawal Agreement could not be re-opened and that the Irish backstop needed to be retained under the existing mandate. Sterling benefited from an element of short covering and there was also evidence of some demand into the month-end fix with a GBP/USD move back above 1.2200.

Sterling also recovered against the Euro with GBP/EUR sliding to below 1.0880 before stabilising, but there was a fresh GBP/USD retreat to re-test 28-month lows 1.2120 amid dollar strength following the Federal Reserve decision. Markets are expecting the Bank of England to hold interest rates at 0.75% with the statement important for overall Sterling sentiment.

Economic Calendar

Expected Previous
08:30 CHF SVME PMI(JUL) - 47.7
08:45 Markit/ADACI Mfg PMI(JUL) 48.8 48.4
08:50 Markit Mfg PMI(JUL) - -
08:55 EUR German Manufacturing PMI (M/M)(JUL) 45.4 45.4
09:00 Euro-Zone PMI Manufacturing(JUL) 47.8 47.8
09:30 GBP PMI Manufacturing(JUL) 49.2 48
12:00 BOE MPC Vote Hike(AUG) - 0
12:00 BOE MPC Vote Cut(AUG 01) - 0
12:00 BOE MPC Vote Unchanged(JUL) 9 9
12:00 BoE QE Purchase Target(M/M)(JUL) 435B 435B
13:30 USD Initial Jobless Claims 214K 206K
13:30 USD Continuing Jobless Claims 1.678K 1.676K
14:45 USD Manufacturing PMI(JUL) - 50.1
15:00 USD Construction Spending (M/M)(JUN) 0.10% -0.80%
15:00 US Manufacturing ISM(M/M)(JUL) 51 51.7

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.