The Fed’s accompanying statement was, however, a little on the mixed side. Policymakers dropped the word ‘accommodative’ from the statement. While this was played down during Powell’s press conference, it supports our recent call that the Fed is approaching the stage of neutral policy and the end of its tightening cycle. Powell also said that the Fed could cut rates should inflation decline.

As for the Fed’s heavily scrutinised ‘dot plot’, twelve of the sixteen voting members now expect another hike in December, up from eight in June. The estimate of three hikes for 2019 was, however, left unchanged, a disappointment to some of the market.

Overall, a bit of a mixed message from the Fed, which led to a brief rally in the US Dollar followed by an immediate drop back to where it began before the meeting. On the hawkish side, it is clear that the bank remains firmly on course to continue raising interest rates this year and next. That being said, we think that the removal of the term ‘accommodative’ from the bank’s statement is fairly significant, suggesting that the current tightening cycle could be nearing its end in 2019. This reaffirms our recent view that we are now at the point where market pricing is more-or-less in line with FOMC rate projections, and that we are subsequently approaching the stage where the recent rally in the US Dollar may be close to coming to an end.

Euro falls on Italy concerns, Brexit saga rumbles on

Away from yesterday’s Federal Reserve meeting, reports of a row within the Italian government sparked a sell-off in the Euro this morning. According to newspaper reports, Economy Minister Giovanni Tria ‘was ready to leave’ ahead of a crucial budget meeting, which may now be delayed. His threat to quit was later denied by a spokesperson, although it has raised serious concerns regarding divisions within the new government that has already been criticised for announcing increased spending plans, despite having one of the largest debt-to-GDP ratios in the world.

Meanwhile, the Pound spent much of trading yesterday relatively range bound, although slipped on Thursday morning as investors braced for more Brexit related headlines. Labour leader Jeremy Corbyn is expected to warn EU Brexit chief Michel Barnier of the dangers of a ‘no deal’ Brexit during his Brussels visit later today. PM Theresa May also stated on Wednesday that EU leaders should come up with their own alternatives to the Chequers deal. All eyes will now be on next week’s Conservative Party conference to see whether May can win over many of her peers that have recently opposed her Brexit proposals.