The Fed finally sounded less concerned than many market participants had thought initially. The buck has been surging against most peers while safe haven JPY and CHF also appreciated following the announcement. However, things appear to be turning now: the Fed is discounting risks of US-China trade war and a hard Brexit while strong economic growth and a tight labor market should push the inflation back to its target. Consequently, equity markets lost ground across the board after reaching record highs earlier in the day. Today’s BoE monetary policy meeting will also not show any major changes.
Indeed, the Fed provided few indications as to where interest rates are heading, stating that current “policy stance is appropriate at the moment”. Yet, despite market expectations of a fall in the Fed’s key rate by year-end, a rate move in the opposite direction can be considered if the global economic recovery sustains. Still, the situation is slightly different for the BoE whose heavy dependence over the Brexit outcome should force it to remain silent – at least until the divorce clauses are revealed. The focus is therefore on Prime Minister Theresa May and Opposition Leader Jeremy Corbyn who seem ready to work on a multi-party agreement. Discussions should ramp up next week.
GBP/USD is trading at 1.3064, approaching 1.3035 short-term.
