Baystreet.ca - - Fed downgrades rate cut outlook
- Bank of England leaves rates unchanged.
- USD consolidated yesterday’s post-FOMC gains.
USDCAD: open 1.4392, overnight range,1.4381-1.4468, close 1.4449, WTI $69.98, Gold, $2619.73
The Canadian dollar is licking its wounds after being mauled by the FOMC interest rate decision yesterday. The FOMC trimmed its overnight rate by 25 bps to 4.50% which was universally anticipated but they left analysts gobsmacked when they trimmed 2025 rate cut forecasts to just two from four in September.
The market reaction was nasty and probably a tad exaggerated due to seasonal holidays. Nevertheless, the US dollar soared against all the currencies. The US Dollar Index (DXY) jumped 1.35% yesterday before recouping some losses overnight. The US 10-year Treasury yield jumped to 4.54% from 4.41% and Wall Street equities plunged.
Markets are consolidating those moves today ahead of Q3 GDP (forecast unchanged at 2.8% y/y), Core Personal Consumption and expenditures, Initial jobless claims and the Philadelphia Fed Manufacturing Survey. Those results should not have much influence on trading.
EURUSD struggled to recover after dropping sharply from 1.0491 before the FOMC meeting to 1.0345 following the announcement. It managed to regain some ground, climbing from 1.0347 to 1.0412 overnight. Sweden’s central bank reduced interest rates by 25 basis points, while Norway’s central bank held rates steady, both aligning with expectations. The euro remains under pressure due to differing monetary policies between the ECB and the Fed, compounded by political uncertainties in France.
GBPUSD fell sharply, dropping from 1.2719 pre-FOMC announcement to 1.2562 Prices rebounded overnight pair rebounded, rising from 1.2563 to 1.2668. The Bank of England kept rates at 4.75%, although three members supported a cut to 4.5% and GBPUSD retreated to 1.2601. It was a dovish “hold” and analysts expect a rate cut at the next meeting.
USDJPY surged after the FOMC, increasing from 153.74 to 154.86, driven by an 11-basis-point jump in the US 10-year Treasury yield to 4.52%. The Bank of Japan maintained its interest rate at 0.25% in an 8:1 vote, which pushed USDJPY even higher to 157.15. Governor Ueda indicated that more evidence of inflation was needed before considering policy changes, highlighting continued hesitance to act despite a near-zero rate policy.
AUDUSD fell, sliding from 0.6310 before the Fed decision to 0.6200. It recovered slightly overnight, moving back to 0.6252.