AUD maintain narrow trading range in face of Hawkish Federal Reserve

Key Movers

Price action across major currencies was dominated by the US Federal Reserve (Fed) policy meeting and the UK CPI inflation update. As expected, the FOMC left rates on hold, yet trailing commentary from Fed Chair, Jerome Powell and the accompanying statement suggested the Fed is committed to its higher for longer mantra. Median estimates suggest that one final hike will be appropriate before year-end. However, the pace of retracement through 2024 will be slower than first anticipated, with peak rates at the end of 2024 expected to remain above 5%, up from 4.65 previously. Against a backdrop of higher US rates, the US dollar index jumped back above 105, pushing on to match last week’s post mark high.

In contrast, the Great British Pound was the day’s big loser, slumping on the back of a softer-than-expected CPI print. Inflation in the UK fell from 6.8% to 6.7%, moving against market estimates of a small uptick back to 7%. Core inflation rose at a slower pace than expected, up 6.2% against a 6.8% anticipated rise. The pound fell to its lowest level since May, following the data as markets repositioned expectations for a Bank of England rate hike this evening. The market is now divided as to whether the MPC will lift interest rates amid rising speculation policymakers may opt to hold rates. With just 22 basis points of tightening priced into the curve, the market is positioning for an end to this current tightening cycle and tonight's decision and accompanying statement will prove key in determining near-term GBP value.