No Fed rush to cut rates

4 minute read


A month or so ago investors decided that, not only would the Fed hold back from raising interest rates another notch, it could well deliver a rate cut before the end of the year. That expectation has been baked into futures prices. Investors thought there would be some hint of that softening tendency in the minutes of the April-May Federal Open Market Committee meeting.

There was not. The minutes simply reiterated that "the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes". It does not mean there will be no rate cut but the thought of one is not uppermost in the FOMC's mind.


This morning euro zone ecostats were not kind to the EUR. The revised gross domestic product numbers from Germany were good enough: the confirmed quarterly growth of 0.4% (annualized 1.6%) in Q1. But the IFO's three measures of German business confidence all came in lower or unchanged on the month. It was a similar story with the German purchasing managers' index readings and they, in turn, weighed on the results for Euroland as a whole.

As a consequence the EUR lost ground in the early European session, losing a fifth of a US cent. It is 0.2% lower on the day. Voting begins today in the elections for the European Parliament. The action kicks off in Britain and the Netherlands; the rest of the continent casts its ballots tomorrow through Sunday. No results will be revealed until polling closes on Sunday night.


Ahead of Toronto's opening the CAD appeared to be heading for a good day.  The positive mood was reinforced by a respectable set of Canadian retail sales data which exceeded investors' expectations. The Loonie popped higher.  

But within an hour it had gone into reverse, following oil prices lower. WTI crude is 2.2% lower on the day and the Loonie is down by 0.5% against the USD.


Sterling is in what has become its default position - at the back of the major currency field - for the usual reasons. It is 0.3% lower against the USD on the day and 3.6% below its early-May peak.

Not only is there no cross-party consensus on how to handle Brexit, there is no consensus even within the two major parties. The leader of the House resigned yesterday and Conservative members of parliament are baying for the prime minister to do likewise. If she does not go voluntarily  - and soon - they will find a way to remove her. It probably goes without saying that the situation is not constructive for the GBP.


Analysts are becoming ever more pessimistic that Trump's trade war with China could drag on beyond next year's election, and it is increasingly being referred to as a tech cold war. That perception is keeping alive demand for the safe-haven JPY and CHF, both of which strengthened against the USD yesterday and overnight. The JPY is 0.3% ahead on the day.

The first of today's round of provisional PMIs was the one for Japan's manufacturing sector. At 49.6 it was below the line that separates growth from contraction and the narrative from Markit noted that "Businesses cast pessimistic outlook towards the coming year for the first time in six-and-a-half years".

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