It’s another big day for financial markets as the much anticipated Fed announcement arrives. Over the past month, many participants have debated what the Fed should do and what they will do, at tonight’s announcement.
The base case is for a 25bps interest rate cut which would take the range down to 1.75% – 2%. A 50bps cut, which some had thought possible a few weeks back, appears far from likely, with economic data and the stock market improving of late. Much of tonight’s focus, from a market perspective, will be on the forward guidance and voting. It will be interesting to see how many dissenters today’s cut encountered. If it’s more than last month’s cut then we can safely assume further cuts will be hard to accomplish for Powell. In respect to guidance, key words and phrases will be monitored. For example, if the term ‘patience’ is included within the statement, it’s a clear message that the Fed will be looking to buy some time to monitor developments between now and Christmas. This would be US dollar positive. On the other hand, if more dovish-styled rhetoric is used, including words such as ‘accommodation’ then we may see some weakness in the greenback.
Elsewhere, it’s a key day for inflation readings with the UK, Eurozone and Canada all releasing prints across the trading day. All-in-all it should be a fairly volatile day with some potentially big swings for the mighty buck.
Written by Viv Savani. 8:44am, September 18th 2019
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