The FOMC released minutes of its 25-26 July policy meeting yesterday which showed that officials are cautiously optimistic about achieving a soft landing. The minutes showed that “a couple” of participants favored leaving the key fed funds rate unchanged, whilst “a number” believed that risks to achieving the central bank’s dual mandate is increasingly two sided, and the Fed should be cautious to avoid overtightening. Many in the market now believe that the Fed is close to the end of its hiking cycle and will pause when rate setters next meet on 19-20 September. The attention now shifts to next week’s Jackson Hole Economic Symposium, when analysts will search for clues on just what the Fed will do to interest rates at its three remaining policy meetings this year.
The US dollar remains solid against most of its G10 peers, with the dollar index gaining for a sixth day as EURUSD slips below 1.09. GBPUSD rallied after yesterday’s UK CPI release, with cable trading briefly above 1.2760 on a hawkish BoE outlook. Tomorrow’s UK Retail Sales report may give us additional clues on the state of the economy, with sales likely to have slipped after unseasonably wet weather hit summer clothing and outdoor spending.
News out of China continues to impact risk appetite with the onshore yuan extending its recent fall to drop near to its weakest level since 2007 amid weak growth prospects and higher US treasury yields which are further widening the US-China yield gap.
