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Dollar falls on dovish Fed

GBP - British Pound

The battle to become the next Conservative Party leader and UK Prime Minister saw second favourite Rory Stewart knocked out of the contest yesterday after securing just 27 votes in the third round of voting. After making big gains in the second round some expected Stewart to be the man to take on Boris Johnson in the final postal ballot of Tory party membership however he fell well short. Johnson won round three with 143 votes, Jeremy Hunt came second with 54, Michael Gove got 51 and Sajid Javid 38. There are two rounds of voting today to whittle the candidates down to two with one due at lunchtime then another this evening.

Away from politics, UK CPI slipped back to its 2% target which was expected and helped push GBP/USD higher.

Today sees the latest Bank of England interest rate decision due at midday with no change of policy expected however it will be Bank of England Governor, Mark Carney's comments which will be the main area of focus. Instead of holding a press conference after the decision he is due to talk this evening at the annual Mansion House dinner in London. Yet again he is likely to warn of the damaging effects of a no-deal departure from the EU and highlight recent data showing the UK economy grinding to a halt in Q2 as Brexit uncertainty envelops UK businesses. We also have Retail Sales numbers from the UK this morning with a monthly drop of -0.5% eyed. GBP/USD hovers around 1.27. GBP/EUR is up to 1.1265.

Key Movers

Yesterdays main event was the US Federal Reserve interest rate decision with no change in policy announced, as was expected. The accompanying statement however showed a marked shift in outlook by members of the Federal Open Market Committee, with the door being clearly left open for rate cuts in the second half of the year. The July meeting is now very much "live" with markets almost fully pricing in a 25bp cut in rates with more possible by the end of the year. The rationale behind the shift is stubbornly below target inflation, despite a tight labour market and the impact of the US/China trade dispute is having on growth. A lot of focus will now turn to next weeks G20 summit to see if there is any progress between the worlds two largest economies re: trade.

EUR/USD is close to breaking through 1.13 at present and global equity markets are all in the green as a result of the Fed's dovish comments. AUD/USD has broken back through .69 and NZD/USD is up to .6580 as risk appetite returns around the world. The Kiwi was also given a helping hand by Q2 GDP numbers hitting expectations showing 0.6% growth compared to the previous three months. USD/JPY is down to 107.65 however this is more to do with the aforementioned dollar weakness than any flight to safety.

Later today we have the monthly Philly Fed Manufatcuring Index gauge with a slip to 10.6 from 16.6 predicted. Tomorrow sees the monthly slew of PMI numbers from the Eurozone with the German Manufacturing reading likely to be most closely scrutinised.

Expected Ranges

GBP/USD: 1.2650 - 1.28 ▲

GBP/EUR: 1.1225 - 1.1370 ▲

GBP/AUD: 1.8290 - 1.8450 ▲

GBP/NZD: 1.9240 - 1.9410 ▲

GBP/CAD: 1.6750 - 1.6910 ▼