The Euro gains against the US Dollar as markets wait for the ECB to lift interest rates by the widely expected 25 basis points and to get any future guidance on further increases. EUR/USD hovers the 1.11 level and GBP/USD advances to trade mid 1.29-1.30. AUD/USD trades above 0.68 as dollar weakens and USD/JPY falls to trade below 140. The Bloomberg Dollar Spot Index is down 0.2%, losing for a third-consecutive day.
The Federal Reserve hiked interest rates by a quarter point last night, resuming its tightening campaign after a stop in June but Chair Jerome Powell left the door open for any possible further rate hikes. Powell’s performance at the press conference was interpreted as dovish with a willingness to skip (again) a hike at the September 20 FOMC meeting, especially after he stated several times that June’s CPI was better than expected and that credit conditions are very tight. Nevertheless, the FOMC policy statement contained a slightly hawkish message with the pace of economic growth being upgraded from “modest” to “moderate”, suggesting that the wider group of Fed officials still wants to leave the door open for an extra hike.
The European Central Bank takes centre stage today where it is expected to raise all its three key rates by 25 basis points. Markets are expecting President Christine Lagarde to announce another 25bp hike in September without committing to it and will add that it will be data-dependent and subject to review. Traders expect the ECB to cut rates by mid-2024, and we think President Lagarde will reassure that at the press conference.