US Dollar tanks after FOMC member Bostic hints at interest rate cut

peaking in Tennessee yesterday, Atlanta Fed President and voting member on the bank’s FOMC, Raphael Bostic, stated that he was open to a rate cut if downside risks all came to bear. Currency traders latched onto his comments, selling the Dollar across the board and further adjusting policy expectations that now show the market is pricing in a higher chance of a rate cut in the US this year rather than a hike.

We then had some contrastingly more upbeat comments from fellow Fed member Rosengren later in the day. Rosengren stated that fears over an economic slowdown ‘may have been unduly pessimistic’, and that greater clarity would be needed before deciding the next policy move. The damage was, however, done with the greenback ending the London session over half a percent lower against the common currency.

Then, after London close, the Federal Reserve released its minutes from its December meeting. The minutes stated that ‘many’ policymakers had the opinion that the Fed could afford to be patient before further policy changes, given recent soft inflation data. This is in line with our view that the Fed will likely pause it’s hike cycle for at least the next two quarters, before deciding whether future hikes are warranted in the second half of 2019.

May dealt another blow after House of Commons ruling

UK Prime Minister May was dealt another blow ahead of a crucial week in UK political history on Wednesday, losing yet another vote in the House of Commons.

The ruling, which was passed narrowly in a 308 vote to 297, now ensures that the Prime Minister will only have 3 days to return to parliament with a plan on how to proceed with Brexit, rather than the 21 initially laid out in the Grieve Amendment. This is a rather significant development that may potentially further open the door to alternative measures, including another referendum or general election. In reality, no one knows what will happen in the coming weeks and with all options seemingly still on the table, uncertainty is rife and the Pound is likely to come under renewed pressure in the coming weeks.

Canadian Dollar extends rally on rate hike optimism

Elsewhere in the currency markets, the Canadian Dollar extended its recovery so far in 2019 after some hawkish comments from the Bank of Canada (BoC).

The BoC held rates steady following its monetary policy meeting yesterday, although talked up the inflation outlook and stated that more rate increases would be necessary, even following the recent sharp decline in oil prices. This is more hawkish than we had expected, given recent data and the oil price decline, and was enough lift CAD to its strongest position since early-December.