Wednesday evening saw the latest policy statement from the Federal Reserve, and the overall mixed message left the dollar experiencing a mixed day. As expected, no major policy changes occurred but Chairman Jerome Powell created a stir on his statement that weakening inflation in the first quarter was ‘transitory’ and that there was no need to consider the cutting of interest rates. In fact, Powell saw no argument for a rate move in either direction. Last night is the first time we have seen the governors view that the current policy stance should be neutral come to fruition, an idea that was introduced in January.
Earlier in the day, the dollar had initially fallen on unexpected weak data. The ISM Manufacturing Index fell to 52.8, way down from the anticipated 55 number. The rate continued to fall during the policy release, as the Federal reserve downgraded its inflation outlook and made a technical cut to rates on excess reserves. However, this then recovered when Powell said that the factors dragging on inflation were not permanent.
The pound experienced a strong day of trading as investor optimism returned off the back of comments by Prime Minister Theresa May on the signs of progress in cross-party Brexit talks. May said that her plan to negotiate a customs arrangement with the EU was similar to that of the Labour party and pound was buoyed as a result. Despite this, it still remains very unclear whether Brexit can be resolved in the near term.
12:00 - GBP: BOE Interest Rate Decision Expected to be unchanged at 0.75%
12:00 - GBP: BOE Minutes
12:30 - GBP: BOE Governor Carney Press Conference