The Fed Chairman warned that interest rate cuts would probably not be seen as soon, or as frequently, as the market expected, in yesterday’s rate decision. This triggered a late sell off in US equities, which was largely regained in overnight trade, while bond yields continued to fall. The market obviously disagrees with the Fed, as bond yields continue to tumble. US Manufacturing PMI moved into expansionary territory, while European Manufacturing remains deep in recessionary territory, contracting heavily. The US Dollar declined, following the fall in bond yields, with the EUR trading up to 1.0860, while the GBP rallied to 1.2730. The Bank of England held rates, as expected but two of the BoE Committee voted to raise rates, following continued elevated levels of inflation in the UK.
The reserve was weaker, allowing the NZD to consolidate above 0.6100, although the AUD drifted lower despite the reserve weakness. The AUD was undercut by the larger than expected falls in inflation, undercutting bond yields and the currency. Australian Manufacturing PMI crept back into expansionary territory once again, while Building permits crashed 9.5%, down 24% for the year. All market focus now turns to tonight’s all-important Non-Farm Payroll number.
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