GBP/USD caught an intraday bump following the Federal Reserve’s (Fed) latest interest rate call, with the Federal Open Market Committee (FOMC) holding interest rates in the 4.25-4.5% range, as many market participants had expected.
Read more Fed rate call news: Federal Reserve set to leave interest rates stable as mounting uncertainty clouds economic outlook
Investors will be waiting for further hints of a possible rate cut from the Fed on September 17 during Fed Chair Jerome Powell’s press conference due at the bottom of the hour at 18:30 GMT.
According to the CME’s FedWatch Tool, rate markets are still pricing in over 60% odds of at least a quarter-point rate cut on September 17.
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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The Federal Reserve kept the policy rate unchanged at 4.25%-4.50% following the July meeting. The news fell short of impressive, leading to some modest price action. Chairman Jerome Powell's press conference is coming up next.
EUR/USD ticked modestly higher after the Federal Reserve left rates unchanged as widely anticipated. The Greenback retains most of its data-inspired gains, following the release of upbeat second-quarter GDP and ADP Employment Change data.
The US central bank kept interest rate unchanged floating between 4.25% and 4.50%, leading to some modest USD losses. The bright metal struggles to recover the $3,300 mark as the Greenback retains its intraday momentum triggered by upbeat local data.
GBP/USD remains under strong bearish pressure in the second half of the day and trades at its weakest level since May, below 1.3300. The broad-based US Dollar (USD) strength on robust GDP and private sector employment data weighs heavily on the pair as focus shifts to the Fed decision.
The Bank of Canada kept its key rate unchanged at 2.75% for the fourth consecutive meeting. This is a pause after an aggressive cut from 5% between June last year and March this year.
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