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Fed statement gives a mild hawkish shift

The Fed has kept rates on hold. This is no surprise, however there is a mild hawkish lean in the wording of the statement. The impact on the markets was initially dollar positive but this has since been unwound.

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The June statement did not change much to the July statement. Here is the summary of June:

  • In June (from April) the improvement in labor market has SLOWED despite the pick-up in economic growth (para 1)
  • Economic activity will expand at a MODERATE pace (para 2)
  • Closely monitor inflation and global economic and financial developments (para 2)
  • Hold rates in the range ¼ to ½ percent (para 3)
  • In deciding the monetary policy to achieve its dual mandate the Fed will take into account labor market inflation and global financial developments (para 4)
  • The Fed remains data dependent (para 4)
  • The decision was unanimous  (as Esther George moved back to neutral from being a hawkish dissent in April)

Much of this remained the same in the July statement, however there have been a couple of mild hawkish hints in the first couple of paragraphs. The first talks about the recent jobs reports. The second talks about the near term. On top of that Esther George is once more dissenting in voting for a hike.

para 1

para 2

In the half hour since the statement was released:

  • EUR/USD initially dropped 20 pips but unwound all of the losses
  • GBP/USD initially dropped 30 pips but has since bounced back by 50.
  • USD/JPY rallied 30 pips but has unwound that.
  • Gold dropped $6 but has since rallied by $10 to trade at the day high.
  • Silver dropped by around 1% initially but has since rallied by 2%
  • Oil remains under big pressure following the surprise inventory build announced earlier today.



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