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The US dollar is weakening this morning after America’s central bankers dropped a loud hint that they will cut interest rates soon.
Last night the Federal Reserve left borrowing costs unchanged, but also revealed that almost every policymaker expects at least one rate cut before the end of 2019.
With inflation low, growth slowing, and Donald Trump dropping loud and unsubtle hints, the Fed is now preparing to reverse some of last year’s rate hikes.
It adjusted its guidance to the markets, dropping its promise to be patient. Instead, the Fed will “act as appropriate to sustain the expansion” and to “closely monitor the implications of incoming information for the economic outlook.
Federal Reserve chair Jerome Powell told reporters that his FOMC committee wanted a bit more information before acting.
He told a press conference:
“We’d like to see if these risks continue to weigh on the outlook.
We want to see and we want to react to trends that are sustained, that are genuine.”
The markets now reckon this means the Fed is certain to cut its benchmark rate, currently 2.25%, at its next meeting in late July.
Jim Bianco
(@biancoresearch)Cut Probabilities 100% after the FOMC statement.
July is 76% for a 25 bps cut, 24% for a 50 bps cut.
If they don’t cut 50 in July, the “second” 25 cut in Sept to 1.875% is 87% (67.1% + 19.9%)
Cannot find an example of 100% probability and the Fed failed to deliver. pic.twitter.com/37mSu9ta1C
jeroen blokland
(@jsblokland)BOOM! The implied probability of a July #FederalReserve rate cut is now 100%. So that means it’s now officially priced in! pic.twitter.com/Eqp4Bx8lKB
This has, predictably, hurt the US dollar. This has lifted the pound back over $1.27 for the first time in a week, reversing this week’s Brexit-induced losses.
Also coming up today
Two other central banks will seize the limelight from the Fed. The European Central Bank releases its latest economic bulletin, two days after its president, Mario Draghi, hinted that it implement more stimulus measures.
Then at noon UK time, the Bank of England will set interest rates. We’re not expecting any changes, but the minutes of this week’s meeting will show the BoE’s thinking.
The agenda
- 9am BST: European Central Bank economic bulletin
- 9.30am BST: UK retail sales for May
- 12pm BST: Bank of England interest rate decision
