It was a false start from Fed Governor Jerome Powell in the race with Mario Draghi to the bottom last night as the US central bank held rates at the current levels as they continue to monitor the incoming data. The forward guidance measure also referred to as the dot plot, signalled a shift in Fed member’s forecasts, despite the median projection remaining at 2.375. A total of 8 voting members now project rates as lower than the median for 2019, however, this was offset by another 8 members projecting the median with only one vote to hike rates. The market currently expects a 46 basis point cut in the coming 3-months, with a further cut anticipated in the 6-month period. Despite the markets aggressively signalling a series of rate cuts by the Fed this year, one instrument was arguably resilient to the market shift – the dollar. The broad US dollar DXY index fell nearly a percentage point since the announcement last night to the time of writing this morning, with notable beneficiaries in the G10 including NOK, EUR and NZD. The move is likely due to the rally in commodity prices also as WTI crude has surged up to $55 dollars. A more accommodative Federal Reserve has dampened previous woes of a slowing global economy and prompted a risk-on move this morning which stretched into both the EM space and commodity markets.


The politically riddled pound has benefitted from this morning’s risk-on move, rallying over a percentage point against a softening dollar after last nights Federal Reserve meeting. Last night also saw the media darling Rory Stewart bow out from the race with only 27 votes, 10 fewer than he received on Tuesday. Boris Johnson meanwhile continued to surge ahead in the polls with 143 votes, followed by Foreign Secretary Jeremy Hunt with 54 and Michael Gove with 51. With Stewart out of the race, Hunt is picking up the slack in holding Boris’ Brexit plans to account, but with only a minor spread between himself and Michael Gove, the race will be on today to stay in the race as the final two candidates emerge. Hunt will appear tonight at Mansion House and give a speech referencing a potential second referendum or general election to break the current Brexit impasse. This morning at 10:00 BST, Tory MPs will file into Parliament’s committee room 14 for the fourth time since last Tuesday to eliminate one more member in the race, most likely Sajid Javid, before returning at 15:30 BST to whittle out the last straddler. The Telegraph states this morning that Johnson supporters may switch tact today and vote for Javid in this morning’s vote in an attempt to knock Gove out of the race. This has been strongly rejected as a game plan from the Johnson campaign, but many see Gove as the biggest threat to Boris’ path to number 10 in the coming month. One thing is for sure today, only two will remain in the fight come 18:00 BST tonight. Outside of Brexit, but only marginally, the Bank of England will convene today at 12:00 BST but are unanimously expected to hold rates given much Brexit related ambiguity remains. On the data side, Retail Sales for May are released at 09:30 BST with a -0.4% reading expected.


The single currency steadily trended higher during the day yesterday and is on the offensive again this morning with a dovish US Federal Reserve likely being the strongest driver of this euro strength, especially vis-a-vis the dollar. Jens Weidmann, the German Bundesbank President and one of the strongest proponents within the European Central Bank’s Governing Council of tighter monetary policies, strengthened his chances to become the new ECB president by softening his stance on Mario Draghi’s most aggressive stimulative policies yesterday. This can be taken as euro-positive news, as “Weidmann for President” implies more hawkish ECB policies. Today sees Eurozone Consumer Confidence at 15:00 BST as the prime data release.


Strong inflation data heightened the probability of a neutral-to-hawkish Bank of Canada, which narrowed the 2-year Canadian-US yield spreads which eventually had the loonie trade higher and reach the top of the G10 currency board. With the month on month inflation increase coming in at 0.4% in May (0.1% expected) the probability of a Bank of Canada rate cut in 2019, as priced in by markets, is less than 50%. As markets estimate the Federal Reserve will cut interest rates three times in 2019, this would mean BoC’s neutral stance will lead to relative loonie strength on the USDCAD cross thanks to more favourable interest rate differentials. Additionally, WTI crude oil price rallied almost 4% again yesterday in the aftermath of the Fed meeting and Department of Energy Crude Oil Inventories that declined faster than expected. Finally, the Mexican Parliament ratified the new USMCA deal, clearing another hurdle to a fully ratified deal. ADP Non-Farm Employment change is out today at 13:30 BST.