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Currency Market Analysis

Jul 31, 2019 | Currency Market Analysis

Global Themes

USD remains at high ahead of tonight’s Fed decision

The US dollar was stronger again ahead of tonight’s decision from the US Federal Reserve.

The US Federal Reserve meets at 2.00am with the market having fully priced in the expectation for the Fed’s first interest rate cut since 2008

The Fed is likely to cut interest rates by 25 basis points to a new upper band of 2.25%

A slowdown in the global economy and worries about the impact of the US-China trade war are the main reasons for the Fed’s likely cut

The market believes there is a chance the Fed might cut by a larger than usual 25 basis points. The market sees an 18% chance of a 50 basis point cut (source: Reuters, 31 July).


The Japanese yen was slightly stronger after the Bank of Japan meeting made no change to its policy or commentary. Some forecasts had expected the BoJ to warn of further policy action.

The British pound fell to new two-year lows as worries about a “no deal” Brexit hit

Inflation ahead

In other markets, critical event today is Australian inflation due at 9.30am.

With headline inflation falling for all of the last four quarters, the economic forecasters are calling for a turn in this downtrend, with headline inflation expected to rise from 1.3% last quarter to 1.5% this quarter.

The bond market is more negative.

The Australian bond markets as recently turned more pessimistic with traders predicting two full rate cuts over the next 12 months. If this forecast eventuates, this would leave the Reserve Bank of Australia cash rate at a historic low of 0.50%.

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