As widely expected, the FOMC left its benchmark interest rate unchanged last night whilst signaling that rates will likely stay higher for longer, and rate setters left the door open for one more hike this year. Officials repeated recent language in the accompanying statement saying that they will determine the “extent of additional policy firming that may be appropriate.” The committee held its target range at 5.25% to 5.5% with Chairman Powell reiterating the message saying officials are “prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we’re confident that inflation is moving down sustainably toward our objective.” The committee released updated projections which showed that they expected fewer reductions in interest rates next year than they reported in June. The dot plot now suggests that rates will be at 5.1% by the end of June 24 – up from 4.6% when the projections were last updated in June. After falling a little after the announcement, the US dollar posted gains with the dollar index rallying a little, sending EURUSD as low as 1.0620 and GBPUSD to within a whisker of 1.2300.
All eyes will be on the Bank of England announcement at midday, with the pound trading at its lowest level in five months and hot on the heels of a lower-than-expected CPI print for August. The decision remains a close call after yesterday inflation report which surprised to the downside but the odds of a potentially final 0.25% increase remain high.
The Japanese yen remains under pressure against the US dollar once again trading above 148 with intervention fears growing as the pair approaches 150. Officials last intervened to defend the yen a year ago tomorrow, when the rate to defend against the greenback was 145, and the possibility of intervention a year later cannot be ruled out.