Currency news

What will the Fed do?

Head of FX Analysis at Equals Money
-
3
min read
Publish date
18/09/24
    • With UK CPI in line no rate cut is expected tomorrow
    • The Fed's dot plot and rate decision are in focus today


    Yesterday's currency recap

    Yesterday, the GBP experienced a surprising turnaround as anticipation built for this morning's CPI numbers, with markets now betting on a potential rate cut by the Bank of England (BoE) this Thursday.

    USD was weaker at the start of the day but finished broadly higher after retail sales grew 0.1% month-on-month versus an expected fall of 0.2%.

    Today's GBP rates

    Currency pair Daily move* Indicative rate**
    GBPAUD -0.44% 1.9487
    GBPCAD -0.30% 1.7902
    GBPCHF -0.10% 1.1155
    GBPDKK -0.23% 8.8379
    GBPEUR -0.23% 1.1844
    GBPJPY 0.40% 186.6710
    GBPNOK -0.30% 13.9534
    GBPNZD -0.10% 2.1291
    GBPSEK -0.18% 13.4200
    GBPUSD -0.35% 1.3169


    *Daily move - against
    G10 rates at 7:30am, 18.09.24

    ** Indicative rates - interbank rates at 7:30am, 18.09.24

    Key data points

    Currency Event Period Consensus Previous
    EUR CPI MoM Aug Final 0.20% 0.20%
    EUR CPI YoY Aug Final 2.20% 2.20%
    EUR Core CPI YoY Aug Final 2.80% 2.80%
    USD Interest Rate Decision Sept 5.25% 5.50%

    Upcoming speeches

    • USD: Fed Chair Powell

    What we think

    Today's burning question: Will the Fed opt for a 25bps or 50bps rate cut? Market odds currently see a 60% chance of 50bps whilst most economists can only see 25bps. The Fed's biggest dilemma seems to be whether a 50bps will prompt fears of an impending recession in the US economy?

    Additionally, the other key focus will be on the Fed's revised dot plot projections. Market pricing is currently forecasting US interest rates of around 2.75% by the end of 2025; and June’s dot plot projections saw rates at 3.25% - a 50bps differential.

    A lower revision by the Fed could put USD under further pressure in the short term. But we have to remember that the market is already very dovish on the Fed so there is a possibility that big losses on the currency could be limited. There is an argument that suggests that USD is more sensitive to hawkish data and commentary in the medium term.

    UK CPI numbers this morning all came in line with projections and thus there is minimal impact on BoE rate projections. As a result, GBP is higher, erasing yesterday's nervousness, and remains in a good position to be well supported in the near term with a drop in risk sentiment being the only risk for further gains.

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