The FOMC delivered a steady rate policy with little change in its policy statement, as expected. However, the dots revealed some surprises, with the median forecast for cuts this year reduced to just one—very narrowly. Markets had expected the dots to signal two cuts. A bit more easing was implied in the 2025 dots relative to the prior estimate, and markets wondered whether the informational value of the dots had been weakened by the lower-than-expected CPI data released earlier.

Chair Powell suggested that the data had not significantly altered views, helping nudge yields a little firmer, but also reiterated that the dots did not represent a “plan” for policymakers. In other words, things can change, and perhaps policymakers heeded their own advice and did not overreact to one data point. The USD recovered about half of the losses that developed after the CPI report following the FOMC but remained lower on the session. Weekly claims and PPI data are out at 8:30 ET.

USD/CAD - The CAD is little changed in overnight trade and has settled into a narrow range. Soft US PPI data may help keep the USD tone soft intraday, but significant CAD gains remain unlikely while yield differentials remain wide. Governor Macklem spoke on a panel with other central bankers yesterday, echoing comments made after last week’s rate cut (no need for policy to be as restrictive, limits to how far the Bank can diverge from the Fed, but not there yet). The comments dropped as the markets were focusing on the FOMC and had little impact. Deputy Governor Kozicki is speaking this morning at 9:50 ET (comments at 9:35 ET) at a CABE event in Montreal.

EUR/USD - The EUR has steadied in quiet overnight trade. With key central bank meetings out of the way, market focus may drift back to the challenge of the snap French election and the sharp jump in OAT/bund spreads; French government bonds continue to underperform, pushing the 10-year differential out a little wider (62+ bps). Significantly wider spreads (beyond recent peaks around 65 bps) may force a stronger EUR reaction to the situation.

GBP/USD - It is Labour’s manifesto launch today, and the early headlines suggest a lot of focus on home building, tightening up labour laws, and tax breaks (corporation tax capped at 25%) and renewable energy. The Conservatives, meanwhile, can’t catch a break. Polling after a leaders’ TV interview/debate showed that voters thought Sunak had performed the worst by a wide 2:1 margin. Sterling remains at ease with the prospect of a substantial Labour majority.