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US dollar falls after Federal Reserve cuts ratesThe dollar sold off against most of its peers after the Federal Reserve fell short of delivering on market expectations for a "hawkish cut" last week.
We expect the Bank of England to deliver a 50 basis point interest rate increase at this Thursday’s MPC meeting, though the decision among policymakers on the size of the hike is unlikely to be a unanimous one.
The US economy now meets the barest technical definition of a recession, and Federal Reserve hikes are now fully dependent on inflation and labour data meeting to meeting.
The US economy contracted for the second straight quarter in Q2 according to data released on Thursday, falling into what is traditionally classed as a technical recession, though US government officials have attempted to deny it.
This week’s FOMC announcement was largely as expected, though the lack of a firm commitment to additional larger rate increases did send the US dollar lower against its major counterparts on Wednesday.
The Federal Reserve is expected to deliver another sizable interest rate hike at its July policy meeting on Wednesday, although we think that calls for a 100 basis point move are unjustified.
Disappointing economic data out of the US brought yields down worldwide and removed any chance of a 100 basis point interest rate hike from the Federal Reserve this week.
The European Central Bank delivered a larger-than-expected 50 basis point interest rate hike on Thursday afternoon, as policymakers in the bloc grapple to rein in the sharp increase in inflation in the Euro Area.
The US dollar was a touch stronger against its major peers on Wednesday, as markets braced for potential negative headlines on the European energy crisis and the possibility of a downside surprise at this afternoon’s highly anticipated European Central Bank meeting.
Rising bets that the European Central Bank could join the ‘50 club’, and raise rates by half a percentage point at its meeting on Thursday, provided solid support for the euro yesterday, lifting EUR/USD comfortably away from last week’s parity levels.
The peak in US inflation has been getting pushed into the future for some time, and June was no exception.
