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Fed leaves rates unchanged, BoC cuts 25bps, ECB likely to cut today

richard evans

Good morning

 

All was pretty much as expected yesterday, Fed kept rates unchanged at 4.5% while BoC cut rates 25bps to 3%.  USDCAD traded up to 1.4470 yesterday, around the upside level that has been tested several times since mid-Dec but so far has held, save for one brief spike last week which saw a high of 1.4515.  BoCs Macklem says that although CAD is weak it is not dysfunctional and it is the threat of tariffs that is having a greater impact on CAD than interest rate divergence.

 

Meanwhile the Feds decision to keep rates unchanged seems down to the ongoing strength in the US economy together with persistent inflation, despite Powell seeing the economic outlook as uncertain.  Fed are in no rush to cut rates and will continue to watch inflation and employment when deciding rates.  This comes as Trump has criticised the Fed for how they have dealt with inflation, saying he will lower inflation by rebalancing international trade, boosting US manufacturing and energy production, and slashing regulation.  He did add that the Fed has done a terrible job on bank regulation, but did draw the line at demanding rate cuts from the Fed.

 

GBPUSD has been trading in a reasonably tight range over the past couple of days, it did dip just below 1.2400 briefly yesterday but is now back up at the 1.2445 area.  EUR has underperformed ahead of todays ECB rate announcement, with EURUSD now 1.0405 and GBPEUR up at 1.1960, the highest level for three weeks.  Disappointing German GDP numbers this morning did nothing to help EUR, EU data is due out later this morning and then ECB are widely expected to cut rates 25bps this afternoon. Lagarde’s comments rarely offer anything of real interest but I think it could be more interesting this time, particularly any reference to inflation which is looking rather sticky.

 

BoJs DepGov Himino was speaking overnight, there was much hype ahead of his speech which did err on the hawkish side but perhaps not as much as some were hoping.  He did say that BoJ would be raising rates again at some point if the economy and inflation move in line with forecasts.  USDJPY has drifted lower over the past day or so, now 154.45, not quite down to the lows we saw post-BoJ earlier in the week but I’m sure Japanese officials will be pleased Yen has not weakened after the Fed kept rates on hold. 

 

South Africa’s SARB are expected to cut rates 25bps to 7.5% at todays meeting.  ZAR has been a bit volatile recently, with USDZAR trading as high as 19.22 and then down to 18.30 in the last couple of weeks, while GBPZAR has traded from a low just last week of 22.70 up to nearly 23.50 on Tuesday, now back to 23.02.

 

In sport, out of the four English teams playing in the Champions League yesterday, only Liverpool failed to win although they were already assured of a top eight finish and indeed finished top of the group.  Arsenal and Villa both made the top eight, Man City scraped into the top 24 on goal difference. 

 

This evening Spurs will be taking on the mighty Elfsborg, Spurs looking to retain their top eight position in the Europa League.  I’d usually be confident but we’ve all seen Spurs form over the past few weeks.  Transfer deadline is Monday, no sign so far of Spurs getting the cheque book out so hopefully we’ll soon have some players back from their long-term injuries.  Man Utd also play this evening, with 15 points it would take a defeat and a series of other results to go against them for them to drop out of the top eight. 

 

That’s all for now.  Main focus is on ECB rates and US GDP this afternoon.

 

Have a great day

 

-  09.00 German GDP

-  10.00 EU GDP, unemployment rate, consumer confidence

-  13.00 SARB rate announcement

-  13.15 ECB rate announcement

-  13.30 US GDP, initial jobless claims

-  13.45 ECB press conference

-  15.00 US pending home sales

-  23.30 Japan Tokyo CPI, unemployment rate, retail trade

-  00.30 AUS PPI

 

 

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