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Fed’s surprise dovish shift

At yesterday’s early morning FOMC meeting, the much-touted dot chart showed three rate cuts, well below the one in September.

In his press conference, Chairman Powell did not dare to push back against a market that was overly prone to rate cuts, but acknowledged that rate cuts were being discussed and when they would be taken.

This was a significant change from previous responses, which stated that inflation was not a major issue and that the risk was more in keeping excessive tightening in place for too long. An earlier interest rate cut was now assured at an earlier date than the market had previously assumed.

Also today, the SNB, BOE and ECB have a series of Fed policy announcements: the SNB has decided to maintain policy; the BOE and ECB will also maintain policy, but in the case of the ECB, which is in the worst economic condition, it may imply a rate cut in the near future.

If this happens, the yen, which cannot ease its monetary policy, will be bought. As the world will be in a race to cut interest rates, the biggest focus will be on how far the yen will return.

European PMIs released.

Manufacturing PMI 42.0 (forecast 43.3)
Non-manufacturing PMI 44.3 (forecast 46.0)

Manufacturing PMI 43.1 (forecast 43.2)
Non-manufacturing PMI 48.4 (forecast 49.8)

Manufacturing PMI 44.2 (forecast 44.6)
Non-manufacturing PMI 48.1 (49.0 expected)

Across the board, the figures were worse than expected, but the French figures were felt to be particularly bad. After the French figures were released, the Eurodollar fell and the Dollar-Yen fell with it, resulting in the Cross-Yen falling by more than one yen.

Meanwhile, the UK PMI showed poor manufacturing, but good non-manufacturing, resulting in a fall in the euro pound.

The dollar was struggling around the ¥142 level during the day today, but the European PMI results led to a sell-off in the crosses and the pair is falling. support around ¥141.50 is firm, but if it breaks, the pair is likely to drop another level.