Fed cut affirmation

Clear signal for July cut

The highly anticipated testimony to Congress by Fed chair Jerome Powell had seen to a reassurance on the likelihood of a July cut despite the latest June jobs report surprise, highlighting that the latter is unlikely to contribute significantly to the return of inflation, a pain point for the Fed. The view had also been in line with the latest June Federal Open Market Committee (FOMC) minutes release which showed that members saw policy easing in the ‘near term’, altogether locking in the expectations for the 25-basis points cut in July.

Arguably, this is nothing new with the market having priced in the expectations, but it had certainly cleared some of last week’s doubts. At the same time, it had reflected the more amenable view from the Fed with regards to further accommodative stances. As it is, a slight tick up in expectations for rate cuts can be seen with two 25-basis points cut priced in by year-end.

On FX, with the Fed opening the door towards easing, the US dollar index can be seen falling back towards the uptrend support, once again at an inflection point. What the latest update does from Fed Powell, while of importance, seals only the move for the July meeting. Geopolitical and data influences are expected to remain important as we move to consider the Fed’s move for the rest of the year. Look to the US June CPI data later in the session for guidance of direction. Any disappointment here could once again return the greenback into a downtrend.

Source: IG Charts

Asia open

As told, Asia markets likewise have the Fed support to celebrate into Thursday. While Wall Street saw to fresh records including the S&P 500 index briefly breaching the 3000 level, Asia markets may see a more moderate pace with gains. A relatively quiet session lies ahead in terms of data for Asia markets, but watch the CPI data as told above.

Yesterday: S&P 500 +0.45%; DJIA +0.29%; DAX -0.51%; FTSE -0.08%