The Dollar, which had been broadly stable for the past two sessions, has lost a little ground in the run-up to this evening’s all important Fed policy meeting, with markets having upped their pricing of the probability of a 25bp rate cut to 26% from 22% yesterday. Analysts’ consensus forecast is that the Fed will keep its policy rate on hold at 2.25-2.50% but use its statement, updated forecasts and press conference to press the case for possible rate cuts in coming months if US economic growth and inflation do not pick up.
The performance of other major currencies has been mixed, with Sterling outperforming. GBP/USD is back above 1.26 and in trade-weighted terms Sterling has gained 0.6% in the past two sessions despite UK core CPI-inflation falling to 1.7% yoy, its lowest level since January 2017. Markets seem to have grown more comfortable with the race for the British premiership, with the result of the third ballot due today at 18.00 London time.
The Euro has made smaller gains, with EUR/USD only just creeping back above 1.12. A press report stating that ECB board members were divided as to whether, when and how the ECB should ease monetary policy has poured some cold water on yesterday’s dovish speech by President Draghi and provided the common currency with a modicum of support.
