The USD has weakened overnight following the latest Federal Reserve interest rate meeting.
As expected, the Fed left their balance sheets and interest rates on hold. They highlighted how solid the US jobs market is performing, which is currently running above their technical full employment level, and how robust economic growth is. However, they also showed concern that inflation continues to miss their target and has done so for the past 5 years.
Overall they look set to announce balance sheet reduction measures at their next meeting (which is a USD positive) but the dovish tones concerning low inflation has reduced the odds of another Fed rate hike before year-end (USD negative). Although they’re like to keep gradually increasing the rates, it might not be as fast as some investors had expected which has disappointed some dollar bulls.
In other news, figures yesterday showed that the UK economy only grew steadily in the second quarter of this year (0.3%). Although this was in line with expectations, and up from the first quarter (0.2%), it still undershoots the BoE’s forecasts and is not enough to increase the number of policymakers voting to hike rates. In fact, there is a chance that the BoE may start to change their overall tone after being more optimistic over the previous month. Their recent hawkish language may have been aimed at strengthening Sterling slightly to help bring inflation back in line (as stronger pound brings costs down).
As a result, the GBP/USD has moved up around 1% from yesterday’s low and currently trades at a 10-mth high. The EUR/USD also pushed up around 1% and hit a fresh 2.5 year high.