Doves, Bears, and Bulls: The FOMC Keeps the Market Guessing

FOMC executives were divided in this week's meetings as to whether further interest rate cuts this year are justified. Brexit back in the spotlight.

Xe Corporate

2019年9月19日 — 4 min read

**Overview:**

  • FOMC executives were divided in this week's meetings as to whether further interest rate cuts this year are justified. They did manage to pass a quarter-point reduction, however.

  • Hong Kong's central bank followed the Fed's lead with a quarter-point interest rate reduction.

  • Japan and Switzerland's central banks are holding their interest rates.

**Highlight:**

The HK Monetary Authority followed the Fed whilst the Bank of Japan and Swiss National Bank maintain their respective status quo. Bank of England waits for further development surrounding Brexit to come to action. The Monetary Policy Committee voted unanimously, this morning, to keep the Bank Rate at 0.75% and stick to current monetary.

Central bankers and businesses are all seeing a gloomy economic outlook, driven by US-led trade war. The OECD jumped the same bandwagon and its latest findings show the world economy is on a trajectory of lower growth. In fact, we could be heading for the weakest global growth since the financial crisis and with downside risks expected to increase.


US DOLLAR

A divided US Federal Reserve bought another insurance cut yesterday, reducing its policy rate by 25 basis points. The US Monetary Policy Committee voted unanimously, this morning, to keep the Bank Rate at 0.75% and stick to current monetary.

Central bankers and businesses are all seeing a gloomy economic outlook, driven by US-led trade war. The OECD jumped the same bandwagon and its latest findings show the world economy is on a trajectory of lower growth. In fact, we could be heading for the weakest global growth since the financial crisis and with downside risks expected to increase. It then comes as no surprise to see gold futures trading near high 0.7% higher and investors seeking the safety of traditional safe-haven currencies. The US Dollar Index (DXY) remains within yesterday’s ranges.


BRITISH POUND

The Bank of England delivered a no-change decision this morning as it sees an intensification of trade tension between the US and China. At home, there is no end on sight for the Brexit drama.  The business community and the sterling are cautious as ever as we hurtle towards the exit date with the future clearly uncertain. Expectations are swinging from optimistic outcome to dire hard no-deal exit and are expected to inject increasing volatility in the market. GBP/USD stays near the top end of this month’s 4.75% surge.


EURO

EUR/USD is seeing a choppy trading today, bouncing from the lows of 1.1020s to trade 0.33% higher as we move into the North American session. The pair is trying to recover after plunging lower after the Federal Reserve reduced rates by a quarter of a percentage point. However, the market is disappointed after Fed Chair failed to give a clear indication on the path forward.  Signs of division within the Committee are likely to keep the greenback under pressure.


CANADIAN DOLLAR

The Canadian loonie is showing no major interest, hardly reacting to major event risks. The USD/CAD remains inside consolidation box – 1.32 and 1.33. The OECD reports showed the Canadian economy to be among the very few expected to record a slight increase in economic growth this year. However, it could, however, face headwinds from anti-trade measures led the US. We expect the currency pair to stay inside recent ranges ahead of the release of retail sale numbers tomorrow.


AUSTRALIAN DOLLAR

Investors are equally bearish on the Australian Dollar, as AUD USD dipped below 0.68 and now sits at 0.6973.


JAPANESE YEN

Dollar-yen was unable to maintain momentum after hitting a seven-week high against the yen yesterday. The pair is currently trading lower, down 0.4% despite Fed Chair Powell assessment that the US economic outlook is “favourable”. Division within the FOMC is creating confusion in the market as future guidance remains uncertain. The Bank of Japan meanwhile left its monetary policy unchanged but is keeping the door open for further tweaks to prop the economy.

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