- Federal Reserve officials voted to keep the benchmark interest rate unchanged at their policy meeting yesterday, with Chairman Jerome Powell suggesting that a cut could come as soon as the next meeting. Rate setters have kept the key rate unchanged since last July and markets have been trying to second guess the Fed since the start of the year when interest rate cuts appeared more likely. Sticky inflation has delayed central bank action and Chairman Powell continued his recent rhetoric regarding upcoming data. He said, “The question will be whether the totality of the data, the evolving outlook, and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market.” He added, “If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September.”
- The US dollar lost ground against its G10 peers with EURUSD inching higher but still within its recent range. The Japanese yen rallied further after the earlier interest rate hike from the BoJ with USDJPY trading below 150 as 2-year yields climbed for a second day.
- The pound is steady ahead of the Bank of England meeting later today with the announcement on policy coming out at midday. The decision remains on a knife edge with the odds of a cut currently sitting at 50%. Inflation data since the previous meeting show that price pressures remain sticky, however the central bank has shown some willingness to tolerate upside inflation surprises. The policy vote from MPC members is more uncertain that usual, with many analysts suggesting a 6-3 vote in favour of a cut – however a cautious hold should not be discounted.
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