The Federal Reserve cut interest rates to 1.75%, in line with consensus forecasts.

The Federal Reserve cut interest rates to 1.75%, in line with consensus forecasts. Chair Powell suggested rates would not be cut again, but effectively ruled out rate hikes.

The dollar failed to sustain initial gains and registered significant net losses with a net shift into alternative currencies while markets failed to rule-out further rate cuts.

According to the Fed, the labour market remains strong with economic activity increasing at a moderate rate. Investment and exports were weak while underlying inflation remained below 2.0% and incoming information will continue to be monitored closely. Initial reaction was muted given that a cut was fully priced-in and there was caution over further moves.

Chair Powell stated that the outlook had moved in a positive direction and that it would take a material reassessment of the outlook for the Fed to change its policy stance. He would not, however, comment directly whether this was the last rate cut and also stated that rate hikes were unlikely given the inflation profile.

The Bank of Japan held policy unchanged, but adjusted forward guidance and reiterated its willingness to act with little net yen change. Risk appetite held steady on US-China hopes and US equities posted fresh record highs, although Chinese markets retreated after weaker PMI data.

The Canadian dollar dipped sharply after the Bank of Canada expressed increased reservations over the outlook, but AUD/USD posted 3-month highs.

Sterling was less of a market focus on Wednesday given that the election issue had been settled. Activity was limited by a large number of option expiries due on October 31st which were taken out ahead of the scheduled EU departure date. There is, therefore, likely to be choppy trading during Thursday, especially with month-end position adjustment also important.

Sterling was little changed for much of the day, but did gain some support following reports that the Brexit Party could withdraw from many parliamentary seats which would boost the chances of Prime Minister Johnson securing a majority in the General Election.

GBP/USD eventually made net gains to above 1.2900 against the weaker dollar following the Fed policy decision while GBP/EUR consolidated around 1.1585. Sterling made net gains on Thursday with markets monitoring UK opinion polls.

Economic Calendar

07:00EUR German Retail Sales (Y/Y)(SEP)3.50%3.20%
07:00EUR German Retail Sales (M/M)(SEP)0.30%0.50%
09:00Unemployment Rate(SEP)9.90%9.50%
10:00CPI (EU Norm) Prelim YY(OCT)0.60%0.30%
10:00CPI (EU Norm) Prelim MM(OCT)-0.20%-0.60%
10:00CPI (EU Norm) Final MM*(OCT)1.80%1.40%
10:00CPI (EU Norm) Final YY*(OCT)-0.20%
10:00Euro-Zone CPI (Y/Y)(OCT)1.00%0.80%
10:00Euro-Zone Unemployment Rate(SEP)7.50%7.40%
12:00GDP Prelim QQ-0.10%0.10%
12:00GDP Prelim YY-0.20%-0.10%
12:30USD PCE Core Price Index(M/M)(SEP)0.10%0.10%
12:30USD PCE Core Price Index (Y/Y)(SEP)1.80%1.80%
12:30USD Personal Spending (M/M)(SEP)0.30%0.10%
12:30USD Personal Income (M/M)(SEP)0.30%0.40%
12:30CAD GDP (M/M)(AUG)0.10%0.20%
12:30CAD RMPI (M/M)(SEP)--1.80%
12:30USD Initial Jobless Claims212K214K
12:30USD Continuing Jobless Claims1.683K1.682K
13:45USD Chicago PMI(OCT)47.647.1
15:30SNB Chairman Jordan Speaks--
21:30AUD AiG Performance of Manufacturing Index(OCT)-54.7

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.