- As expected, the Federal Reserve held its fed funds rate unchanged at 5.25% to 5.50% for the fifth meeting in a row. Ahead of the meeting there was some speculation that the FOMC would reduce the number of cuts in 2024 down to two moves, however, officials decided to stick with three cuts over the course of the year. However, the ‘dot plot’ was revised to show one less rate cut in both 2025 and 2026 and the Fed’s longer run median rate was moved upwards to 2.6% from 2.5%. The market is now pricing in a circa 15% chance of a rate cut in May, with a cut at the June continuing to be more likely, priced at around 69%. So, once again markets are in a holding pattern, with the upcoming inflation and labor market reports key to the timing of the first Fed cut. Chairman Powell commented that the major inflationary data points “haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes-bumpy road toward 2%. We’re not going to overreact to these two months of data, nor are we going to ignore them.” The greenback lost ground against most of its G10 peers with EURUSD breaching resistance to trade as high as 1.0940 and GBPUSD briefly breaching 1.28 before running into offers.
- The Bank of England holds its policy meeting this morning, with an announcement on interest rates coming at midday. No change in rates is expected, despite a softer than expected inflation release yesterday. Inflation is moving in the right direction for the MPC, but it remains too soon for a downward move, with rate setters unlikely to announce a cut until at least the June policy meeting. Markets will be watching today’s vote to see if any policymakers shift their vote, which may give us a greater insight of the timing of the first move.
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