Macro economics

Analytics on 20/06/2019. Markets digest the dovish message from the Fed, dollar lower across the board

European stocks are trading on a strong footing on Thursday as investors are inspired by a dovish shift from the major global central banks. The risk sentiment improved further after the Fed confirmed its readiness to start cutting rates. As a reminder, European Central Bank President Mario Draghi touted another round of stimulus earlier this week, which added to the bullishness in the financial markets. Meanwhile, Trump’s tweet on the potential meeting with the Chinese leader helped to lift hopes for resuming the negotiations between the two countries and some progress towards a deal.

Against this backdrop, the UK’s FTSE 100 adds 0.34 per cent to 7428, Italy’s FTSE MIB rallies 0.81 per cent to 21,393, France’s CAC 40 rises by 0.64 percent to 5,553, while German DAX 30 gains 0.88 per cent to 12,417. US stock index futures are sharply higher after the Fed signaled possible rate cuts.

The dollar is on the defensive after a dovish statement by FOMC despite traders were ready for such an outcome of the meeting. Investors now expect the Federal Reserve to start cutting rates as early as next month, which reduces the appeal of the safe-haven greenback. As a result, EURUSD extended gains to the 1.13 area today after a break above the 100-DMA. Now, the resistance around 1.1330 comes into focus. But the upside momentum in the common currency could be limited from here as the ECB also signals further stimulus.

Meanwhile, as was widely expected, the Bank of England left the key rate unchanged at 0.75% in an anonymous vote. The central bank said that tightening of monetary policy at gradual and limited pace needed. However, with the initial market reaction, the cable came under some pressure, in part as the bank noted that downside risks to growth have increased since May. GBPUSD slipped marginally from daily highs at 1.2726 and now clings to the 1.27 handle awaiting further developments.

Oil prices briefly jumped above $63 earlier today and despite the retreat stay in the positive territory in the daily charts. Brent rally was fueled by reports that Iran shot down a U.S. military drone, raising fears of a military confrontation between Tehran and Washington. The drone was downed in international airspace over the Strait of Hormuz by an Iranian surface-to-air missile. Iran’s Revolutionary Guards said the drone was flying over southern Iran.

The additional support for the oil market comes from a combination of dollar weakness and rising expectations of a rate cut by the Fed. Also on the positive side, the prospects for a progress in the trade talks between the US and China. As such, the short term market outlook has brightened somehow but downside risks remain at this stage, and futures are still highly sensitive to global developments.

Nathan Lambert, Head of Global FX Analytical Department

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Interest rates

Country Rate Value
USA Federal Funds 1.75 %
Switzerland 3 Month LIBOR Range -0,75 %
United Kingdom Repo Rate 0,75 %
EU Refinancing Tender 0,00 %
Japan Overnight Call Rate -0,10 %
New Zealand Official Cash Rate 1 %
Australia Cash Rate 0.75 %
Canada Overnight Rate Target 1,75 %
All rates

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