The dollar fell against a basket of major currencies on Wednesday, reversing initial gains after the Federal Reserve cut interest rates for the third time this year. The Federal Reserve signalled that its rate-cut cycle might be at a pause, as it was broadly expected. In lowering its policy rate by a quarter of a percentage point to a target range of between 1.50% and 1.75%, the US Central Bank dropped a previous reference in its policy statement that it ‘will act as appropriate’ to sustain the economic expansion – language that was considered a sign for future rate cuts.
Comments by Fed Chairman Jerome Powell in the press conference following the US Central Bank’s statement further boosted the notion that additional cuts in the near-term are unlikely. The current stance of monetary policy is likely to remain appropriate and it would take a material reassessment in the outlook for the Fed to change its current stance, Powell said. The greenback also temporarily dipped on reports that Chile has withdrawn as host of an APEC trade summit in November, where the United States and China had been expected to take major steps toward ending a 15-month-old trade war.
Sterling edged higher on Wednesday after Boris Johnson won parliamentary approval to hold a general election in December, though moves were limited as large currency options expiring this week curbed volatility. Johnson, who has failed to deliver on his ‘do or die’ 31st October Brexit promise, secured the election agreement for mid-December just hours after the EU granted a third Brexit delay.
The pound has rallied almost 5% so far in October, boosted in the week leading up to the EU summit where a new Brexit deal was approved. Johnson pushed for the election in response to being unable to get this deal through Parliament. While the risk of a no-deal Brexit has been taken off the table by most analysts, there is a chance that a Conservative election win could embolden hard line Brexit elements of the party to push for a more disruptive break from the EU.