The Fed Chairman admitted that the topic of interest rate cuts is coming into view which is as close as you’re likely to get to an admission that the committee believes it has done enough as far as the tightening cycle is concerned. The USD tumbled following the Fed decision as US yields retreated and the stocks took off. That pattern has extended this morning, with nearly all the major currencies posting gains on the USD.  

EUR/USD - The ECB leaves rates unchanged at 4.5%. President Lagarde speaks at 8.45ET. Refreshed staff forecasts for inflation and growth will give policymakers a little more perspective on the rate outlook but it remains to be seen whether the ECB’s leadership is willing to mimic the Fed and endorse market expectations of an early start to the easing cycle.  

GBP/USD - The BoE left its key rate unchanged at 5.25%. Governor Bailey said there was “some way to go” on inflation and the vote was split 6-3 in favor of a hold (dissenters favored a hike). Markets have pared back BoE easing bets in the wake of the decision and the GBP is extending gains.  

USD/CAD - The CAD is riding the soft USD wave back to its best levels since the end of September and might have a bit more to go yet. Stronger risk appetite, lower US yields and stronger commodity prices are CAD-supportive. CAD gains are also pressuring the overhang of significant CAD bearish positioning that has accumulated over the past couple of months via the CFTC data and short-covering demand could add to tailwinds for the currency in the short run. Recall that Governor Macklem speaks tomorrow and is unlikely to emulate Chairman Powell and allow that policymakers here are mulling rate cuts. That contrast may also add to CAD support. Canada releases Manufacturing Sales data for October (the street is looking for a hefty 2.7% drop in the month), in line with the Statcan flash estimate.  

USD/JPY - It is no surprise to see the USD/JPY trend accelerate after the FOMC announcement. Traders have been adding to bets that the Bank of Japan (BoJ) is nearing a historic shift in its ultra-loose monetary policy framework which has wide ranging ramifications for global markets as the carry trade is under threat. At a time when rate expectations in the US are on the decline, Japan is potentially looking to raise rates in the first half of next year if the decision-making body is convinced of consistently high inflation with wage growth to match.