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Under-doved

Fed disappoints everybody

Yesterday evening, the Federal Open Market "decided to lower the target range for the federal funds rate to 2 to 2.25 percent". The statement revealed that two members voted against the cut. At his subsequent press conference, Chairman Jerome Powell was less than crystal clear about where the Fed goes next.

Journalists were keen to discover whether Mr Powell saw yesterday's cut - the first since December 2008 - as a one-off or the beginning of a sequence. He chose to describe it as a "mid-cycle adjustment". Pressed on the matter, he said it was "not the beginning of a long series of rate cuts" but nor was it "just one, or anything like that".  

Investors quickly came to the conclusion that, with an 8-2 vote and a reluctance to commit to further cuts, the Fed was less dovish than they had believed. They marked down equity prices and took the US dollar higher, making it the day's leader, a quarter of a cent ahead of the pound.

Lower and slower

Euro zone inflation and growth data provided the biggest target on Wednesday. They were not appreciably worse than forecast, but they did contribute to the general air of economic malaise in Euroland. The euro was well into the back half of the field, three quarters of a cent lower against sterling.

Gross domestic product expanded by a provisional 0.2% in the second quarter. It was in line with forecast but only half the pace of Q1's 0.2% expansion. Headline inflation was down from 1.3% to a provisional 1.1% and core inflation - excluding food and fuel - slowed from 1.1% to 0.9%. Such numbers will strengthen the hand of those in the European Central Bank who would ease monetary policy further.

The rest of yesterday's ecostats were little more than makeweights. ADP reported an additional 156k US jobs in July. Canada released the first data in ten days: sharp falls for industrial product and raw materials prices were balanced by a 0.2% monthly expansion of GDP. The Chicago purchasing managers' index looked unpleasant at 44.4.

Prizes for everyone

The agenda for today and Friday holds plenty to keep investors interested. The round of manufacturing purchasing managers' index readings has already started. The Bank of England will announce its rate decision today and the US employment report comes tomorrow.

Manufacturing PMIs already announced are Australia's 51.3 (AiG) and 52.6 (CBA), Japan's 49.4, China's 49.9 (Caixin) and Sweden's 52.0. All but the Japanese figure were unchanged or higher on the month. Of this morning's European readings, France is expected to deliver the strongest, on the cusp at 50.

Nobody expects any change to BoE policy today. Everyone will, however, pay close attention to the minutes of the meeting. Governor Mark Carney has had little over a week to absorb the idea of a government indifferent to weakness in the economy or the currency. Perhaps the minutes will shed light on his thoughts.

GBP: No change expected from BoE

GBP: No change expected from BoE

USD: Higher after rate cut

USD: Higher after rate cut

EUR: Slower growth and inflation

EUR: Slower growth and inflation

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