The dollar traded with a tentative negative bias ahead of the Fed decision. The Fed left rates unchanged but is closely monitoring whether uncertainties that are weighing on the economy will call fur policy accommodation in the near term. The dots indicate that the case for rate cuts later this year is building within the FOMC. Even a 50 bp rate cut in a not that distant future is possible. US yields and the dollar declined further. On the dollar, Fed's Powell repeated that the Treasury is responsible for FX. The Fed doesn't target the dollar. EUR/USD closed at 1.1226, well off the intraday peak. USD/JPY finished at 108.10.

The Fed-inspired risk rally continues in Asia this morning. China outperforms. Japan underperforms. The BOJ left its policy unchanged, but the Bank is coming under growing pressure to join the easing stance of the ECB and the Fed. USD/JPY dropped further (currently near 107.65). A further slide in US yields is supporting EUR/USD (1.1265 area).

The yuan also strengthens against an overall weaker dollar (USD/CNY 6.8675). RBA's Lowe said that it wasn't unrealistic to expect a further rate cut and called for fiscal stimulus, too. The gain of the Aussie dollar against the USD is modest. (AUD/USD 0.6890).

Today, there are few data in Europe. In the US, the jobless claims and the Philly Fed business outlook are not the most high profile data series, but any signs of weakness might weigh on the dollar.

Earlier this week, euro weakness prevailed as Draghi signalled further ECB easing. The Fed at least restored the balance of softness, as it showed to be close to cutting rates soon if necessary. Any Fed action is still data-depended. Even so, we see an asymmetrical reaction function for the dollar, with the US currency being more sensitive to negative rather than to positive news. EUR/USD support at 1.1180/1.1107 looks solid. EUR/USD probably entered a buy-on-dips pattern for return action higher in the 1.1180/1.1350 trading range.

EUR/GBP lost gradually further ground yesterday and closed below the 0.89 handle. Boris Johnson becoming the next UK PM looks more or less discounted. Today, the UK calendar is well filled with the retail sales and the BoE policy decision. Markets will closely monitor whether the BoE keeps its guidance for gradual rate hikes. The market already for quite some time sees this call as unlikely, but the BoE might wait till the August inflation report the chance its assessment. Even so, The BoE shifting to a more neutral bias might be a (modest negative) for sterling.

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This non-exhaustive information is based on short-term forecasts for expected developments on the financial markets. KBC Bank cannot guarantee that these forecasts will materialize and cannot be held liable in any way for direct or consequential loss arising from any use of this document or its content. The document is not intended as personalized investment advice and does not constitute a recommendation to buy, sell or hold investments described herein. Although information has been obtained from and is based upon sources KBC believes to be reliable, KBC does not guarantee the accuracy of this information, which may be incomplete or condensed. All opinions and estimates constitute a KBC judgment as of the data of the report and are subject to change without notice.

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