North American Summary and Highlights 29 July

North American session

The FOMC left rates unchanged which was as expected, but with markets having seen a significant risk of a tightening the USD dipped on the decision, even with three dissenting votes from district Fed presidents for tightening. The USD slipped further during Chairman Warsh’s press conference which not only avoided forward guidance but gave little insight on what would guide policy and showed little sign of urgency over reducing inflation. The yield curve saw a sharp steepening and equities fell, while oil prices reflected continued risk in the Middle East.

USD/JPY fell to 163.40 from 163.80 while EUR/USD rose to 1.1450 from 1.14 with EUR/JPY moving above 187. EUR/GBP was slightly firmer and EUR/CHF little changed. AUD/USD gains were modest but USD/CAD fell to 1.4050 from 1.41. Ahead of the FOMC decision BoC minutes had hinted that tightening on oil risks was more likely than easing on tariff risks.

European session

A further morning of largely waiting out the FOMC. There is unusual uncertainty into the latter (very unusual to have 30% hike odds rather than nearer zero or 100% - partly reflecting lack of guidance and partly reflecting division and uncertainty). This leaves the market waiting for what could be two-way reaction. EUR/USD is back to sitting just off 1.14.

Brent front month sits up around $3, breaking the recent downtrend on concerns over US-Saudi strikes on Iran-backed groups in Iraq, while Iran also rejects Oman’s proposals for regional management of the Strait. Tech stocks remain weighed (Kospi had another bad session, Nikkei still underperforming), very marginally leaning on USD/JPY into month end, though reluctantly (-0.2%).  AUD/USD around day lows following the Asia move, and has nudged back below 0.6950, dragged both by the regional tone but also with CPI coming in a little below expectations.