The Fed finally lived up to the market's dovish expectations as Powell made the case for cut in July. It was the first aggresively dovish turn and the first dovish dissent in the era of the Powell Fed. Gold broke above 1350  to hit a 5-year high of 1394 and silver broke 15.00  to reach 15.40. The pound was the top performer while the US dollar lagged. The BoE decision is up next. The Premium Insights gold long reached its final target of 1380 (from 1280 entry). Each of the 3 other existing USD Premium trades are at least 100 pips in the green. Below is the latest FOMC statement with a strikethrough comparison with the April stmt.

Chart

 

The market went from 'fairly certain' of a rate cut in July to 'entirely certain' after the Fed removed patient from the statement and lowered the dot plot. The dots now show nearly half of the Fed anticipating two cuts this year. Powell pinned the shifts in language on rising uncertainty from trade and global growth along with weakening inflation. The market reacted by fully pricing in a July cut with a small chance of a 50 bps cut. A second cut in September is 86% priced into the Fed funds futures market as well.

It was a historic Fed outcome as not only it signalled the first clear dovish shift in the Powell Fed era, but also had the first dovish dissent, with St Louis Fed's James Bullard voting for a rate cut. 

The bond market was surprised by the outright turn and 2-year yields fell 13 basis points to a fresh cycle low at 1.73%. Ten-year yields were down 3 basis points in a slight signal that the Fed is catching up to the curve.

Given the falls in yields, the dollar decline was initially muted with roughly 50 pip dips across the board. The modest decline at the start reflected the continuing larger role of equity flows as the S&P 500 gained again. It also reflects the Fed's assessment that global factors are the catalysts for cutting; a sign that other central banks won't be far behind.

Cable has engineered a solid turnaround after finding support at 1.2500 on Tuesday to reach 1.2720. Rory Stewart was eliminated from the Conservative leadership race and now it's down to four candidates, one of whom will take on Boris Johnson in a runoff. That man will be decide in the final two votes of MPs on Thursday. All the remaining candidates are polling behind Johnson within the party and there will be some pressure to concede. Any signs of a united front from Conservatives will give them a better chance of getting something through parliament. If Hunt, Gove or Javid chooses to fight, it will signal more gridlock on the Brexit front.

As we move to the BoE decision next, governor Carney may choose to dial back his prior rhetoric that rate hikes could come faster than markets expect in the case of a smooth Brexit. If he decided to stick with a positive tone, the rally in GBP will continue. The Premium Insights remain long GBPUSD from 1.25920

Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

Recommended Content


Recommended Content

Editors’ Picks

AUD/USD recovers further toward 0.6800 on risk-recovery

AUD/USD recovers further toward 0.6800 on risk-recovery

AUD/USD extends recovery toward 0.6800 in Asian trading on Thursday, despite mixed Australian employment data. The Aussie cheers a return of risk appetite, which weighs on the post-Fed US Dollar recovery. All eyes now remain on US economic data for fresh impetus. 

AUD/USD News
USD.JPY reverses sharply from 144.00, as US Dollar recovery fizzles

USD.JPY reverses sharply from 144.00, as US Dollar recovery fizzles

USD/JPY is attacking 143.00 in Thursday's Asian session, reversing sharply from 144.00. The pair pares back gains in tandem with the US Dollar, as the latter's post-Fed recovery falters due to a rebound in risk sentiment. The focus is next on the US data due later today and Friday's BoJ decision. 

USD/JPY News
Gold defends $2,550 in the Fed’s aftermath, ahead of US data

Gold defends $2,550 in the Fed’s aftermath, ahead of US data

Gold price is defending $2,550 early Thursday, catching a breath after intense volatility witnessed in the aftermath of the all-important US Federal Reserve monetary policy announcements and Fed Chairman Jerome Powell’s press conference.

Gold News
Bitcoin surges to $62,000 mark after 50 bps Fed rate cut

Bitcoin surges to $62,000 mark after 50 bps Fed rate cut

Bitcoin and Ripple eye for a rally as they break and find support around their resistance barrier. Meanwhile, Ethereum demonstrates signs of recovery as it approaches a critical resistance level, indicating that an upward rally could be on the horizon if it successfully breaks through.

Read more
Australian Unemployment Rate expected to hold steady at 4.2% in August

Australian Unemployment Rate expected to hold steady at 4.2% in August

The Australian Bureau of Statistics will release the monthly employment report at 1:30 GMT on Thursday. The country is expected to have added 25K new positions in August, while the Unemployment Rate is foreseen to remain steady at 4.2%.

Read more
Moneta Markets review 2024: All you need to know

Moneta Markets review 2024: All you need to know

VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.

Read More

Majors

Cryptocurrencies

Signatures