The U.S. dollar sprung to life yesterday and continued its rally overnight. As widely expected, the Federal Reserve cut interest rates by a quarter of a point, marking the first cut since the financial collapse of over a decade ago.
At the press conference following the decision, Fed Chairman Jay Powell threw cold water on policy doves who expected the Fed to indicate that the rate cut would be the first of a series. Instead, Powell signaled the hike was a “mid-cycle adjustment”. As a result, the dollar soared and equities tumbled as market participants pared back expectations for further cuts.
The dollar will now try to carve out new, stronger ranges against most if its counterparts. Economic data will take a backseat for the time being as markets continue to digest yesterday’s meeting. Two manufacturing gauges will cross the wire later this morning but would have to be large surprises to the downside to derail the dollar train.
What to Watch Today…
- No major events scheduled for today.
Complete Economic Calendar can be found here.
The Euro was also the victim of yesterday’s dollar rampage. EUR/USD fell to its lowest level since May 2017 in the wake of the Fed’s “hawkish cut.” The Euro continued to sell-off overnight as domestic data disappointed. Manufacturing in the Eurozone shrank for a sixth consecutive month with particularly worrisome German data.
The British pound’s terrible summer continued yesterday on broad dollar strength and carried into the overnight session. The Bank of England did little to relieve the stress on the beleaguered currency that has fallen to multi-year lows against the greenback. As expected, the BoE voted unanimously to keep rates unchanged at 0.75%. The BoE also released new forecasts for the economy and said they were less confident about their outlook for the economy because of uncertainty surrounding Brexit. While the BoE’s base case is a smooth Brexit, the bank did say that if there is no deal that the pound will fall, inflation will accelerate and growth will slow. We agree. As a reminder, the new deadline for a deal is October 31st of this year. Tick, tock.