Yesterday saw the Federal Reserve cut interest rates from 2.50 percent to 2.25 percent. Fed Chairman Jerome Powell remained neutral in his statement, saying that this was a part of a “midcycle adjustment to policy”, providing some relief to US markets as this ruled out a long-rate cutting cycle from the central bank. Ward McCarthy, a Chief Financial Economist at Jeffries, stated: “Since they’ve already taken the step [to cut rates], they’ll probably take another, but his comments and the two dissents suggest this is not the beginning of a major easing cycle.”

The US dollar benefited from the Fed’s notably less aggressive stance as US markets interpreted the quarter-point rate cut as being a likely one off. 

The pound, meanwhile, failed to benefit from this morning’s UK Markit Manufacturing PMI, which remained in contraction territory at 48.

Rob Dobson, Director at the IHS Markit, said: “July saw the UK manufacturing sector suffocating under the choke-hold of slower global economic growth, political uncertainty and the unwinding of earlier Brexit stockpiling activity.”

Sterling traders are also remaining jittery ahead of the Bank of England’s (BoE) interest rate decision today.

The central bank is expected to hold rates at 0.75 percent despite increased risks of a no-deal Brexit darkening the UK’s economic prospects. 

The Governor of the BoE Mark Carney is also expected to be downbeat in his statement, with the likelihood of a chaotic departure from the European Union pressure on the bank’s policy in the near-term. 

Marcus Ashworth, the former Chief Markets Strategist at Haitong Securities, commented: “As the political temperature rises it’s time the bank communicated its plans to support the wider economy.”

“Some clarity on its rate stance and broader plans in the event of a disorderly Brexit [could] even stabilize the pound.”

US dollar traders, meanwhile, will be looking ahead to today’s publication of the US ISM Manufacturing PMI for July, which is expected to rise from 51.7 to 52 and could lend the US dollar support. 

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