Jay Powell, Chair of the Federal Reserve in the United States, has reignited the debate of monetary policy within the world’s dominant currency. The US Dollar has faced a considerable headwind following the speech by the Reserve bank chief. The Dollar has given back ground to an appreciating Euro, with EURUSD dropping a 1.12 handle to trade in the high 1.13s throughout the day. The pair briefly broke 1.14 at 13:30 UK time, however, found considerable resistance, retreating back to the middle of its intraday range. Yesterday evening’s speech by the relatively new central bank chairman need not have signalled the Reserve’s intention with respect to monetary policy given the planned orientation of the speech. However, highlighting the present policy rate band (2.00-2.25%) as very close to the neutral rate led investors to question how much further the Fed was prepared to go. With a rate hike priced in for December to a considerable degree, markets immediately priced out 2019 rate rises, leaving only one firm policy change for the whole of 2019. The sudden reaction to Powell’s words led to a concomitant sell off in the underlying Dollar, however, did offer considerable scope for equity markets to rally. The Pound has failed to catch a bid today as May’s parliamentary position continued to appear weak. Labour is rumoured to be considering a second referendum if May’s Brexit bill is defeated in the House of Commons on December 11th. Tomorrow, Eurozone price and output data will be read with particular attention on Italy, providing considerable risk within the European single currency.
Today’s Global Market:
Discussion and Analysis by Charles Porter