- In a speech yesterday, Federal Reserve Chairman Jerome Powell said that the central bank will lower interest rates “over time.” Continuing with his recent rhetoric he emphasised that the US economy remains on solid footing and that inflation continues to move towards the Fed’s 2% target. The size and pace of interest rate reductions remain a hot topic for markets and Chairman Powell gave few clues saying, “Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance.” However, he added caution, saying, “But we are not on any preset course” suggesting that the FOMC remains data dependant and policy will be reviewed on a meeting-by-meeting basis. After a bumper 50bp move last month, markets are expecting two smaller reductions of 25bp before the end of the year, however a cut of 50bp at one of the remaining two policy meetings of 2024 cannot be discounted.
- The single currency is lower against the greenback after once again failing to hold significantly above 1.12. The pair has dropped to the mid 1.11’s where it consolidates ahead of inflation data due later this morning. Today’s print may have an impact on the ECB’s interest rate decision when they meet on 17 October. This morning’s report comes after German CPI dipped below 2% for the first time since 2021, joining France, Italy and Spain below the ECB’s target rate. This is likely to push the euro area sub 2%, with markets currently pricing an 88% chance of a rate cut this month.
- The pound is consolidating against the greenback after cable peaked above 1.34 at the end of last month. Sterling remains well supported although a lack of UK data is keeping the pound on the sidelines, with the recent moves seen more as a sign of dollar weakness than considerable sterling strength.
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