Fed pushes back against early rate cuts

Market reports
Lawrence Kaplin
  • GBP: Bank of England in focus
  • EUR: Inflation set to fall
  • USD: Rises post Powell
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Markets traded sideways during yesterday’s European trading session in anticipation of the US FOMC interest rate meeting at 7pm. There were some minor data points released prior to the rate announcement, notably German Retail Sales and inflation came in lower than forecast, as did US ADP employment.

The US dollar firmed after the Fed left interest rates unchanged for the 4th consecutive meeting as expected, but Chair Powell used the subsequent press conference to push back against market pricing for an early March rate cut stating, “a rate cut in March is not our base case”, causing market pricing for a March US rate cut to immediately drop from 65% to 35%.

The monetary policy baton is now passed to the UK MPC and Bank of England Governor Bailey, with the UK interest rate announcement due later today at 12pm.


Market rates

*Daily move - against G10 rates at 7:30am, 01.02.24

** Indicative rates - interbank rates at 7:30am, 01.02.24

Table (66)

Data points

Table (67)


  • EUR: ECB Lagarde and Lane
  • GBP: BoE Bailey

Our thoughts

Post last night’s Fed announcement, whilst markets have now pushed back pricing for the timing of the 1st US rate cut, they still refuse to believe the Central bank’s guidance for 3 rate cuts this year, and continue to trade in the belief there will be at least 6.

Today’s Bank of England Interest rate announcement is also expected to leave rates unchanged at a 16-year high of 5.25%, but markets will be closely scrutinising how the 9 member MPCs voted, along with accompanying forecasts signalling when monetary policy might be eased. Expectations are for only one member to vote for a hike versus 3 at the last meeting. Prior to the meeting, markets are pricing the first cut by the June meeting, although May is a possibility.

We also have EU inflation data out this morning, which is expected to show a further reduction in the Core Inflation rate from 3.4% to 3.2%.

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