- The Federal Reserve held interest rates unchanged for a seventh straight meeting, voting to keep rates steady in a range of 5.25% to 5.50%. In an updated ‘dot-plot’ policymakers dialled back their expectations for rate cuts in 2024 with just one cut likely this year, down from the three they were forecasting in March. However, they now see four cuts in 2025, an increase in the three they were predicting three months ago. The two-day meeting was concluded a few hours after the release of the May inflation report which showed that price pressures are moving in the right direction. Both headline and core CPI come in a tenth lower than expected, giving some relief to US households. Whilst the drop was welcomed by Fed officials, policymakers have previously stressed that they would need to see several months of receding price pressures before they would consider lowering interest rates. There are now just four FOMC meetings before the end of the year and a cut in November or December is currently looking most likely, but the decision remains data dependant.
- The US dollar was sold after the inflation report with EURUSD initially posting gains before selling off after the FOMC decision. The pair broke through the pivotal 1.08 level before running into offers at 1.0850. GBPUSD followed a similar pattern, spiking to 1.2860, before drifting lower to once again consolidate in the high 1.27’s.
- The attention remains in the US this afternoon as we wait the release of weekly jobless claims and Producer Prices for May. PPI is likely to have slipped as gasoline prices declined and jobless claims are expected to come down after the upside surprise in the previous week.
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