What were the key takeaways for markets from Wednesday’s FOMC meeting?

1. The Fed cut is a form of insurance, of policymakers getting ahead of the coming weakness in the US labour market. But a jumbo-sized cut does risk sending the wrong signal to markets as the economic backdrop is still relatively solid.

2. The prospect of a steady stream of rate cuts versus a slower path in the eurozone and the U.K, with tighter policy in Japan, should drive pressure on USD in the medium term.

3. The major pivot point on the Dollar Index is around 100.61 which is big support / resistance. A decisive weekly close below here targets a fall to the 99.00/50 zone. Near term resistance is the 21-day simple moving average at 101.21 with a more significant area at 101.84/91.

What happens after January may depend a lot on who is in the White House. Trump 2.0 would ultimately mean higher tariffs and higher inflation, stopping the Fed’s cutting cycle abruptly and boosting the greenback. A Harris win would probably be less inflationary and help the Fed deliver more policy easing.

What were the key takeaways for markets from The Bank of England meeting?

The Bank of England left rates unchanged as expected by consensus and market pricing. The three takeaways:

1. The recent BoE theme is that the MPC is in no rush to cut rates again and can tread more carefully than the Fed. This hasn’t changed after today’s meeting.

2. The inflation picture simply hasn’t improved enough to warrant more easing just yet. The 8-1 vote split certainly backs this up, though some officials have put sticky services inflation down to volatile categories which can be looked through. This data is key for policy going forward.

3. The gradual policy approach has seen money markets reduce the number of rate cuts for this year and the bank’s stance should continue to underpin support for GBP.

The Three Markets to now Watch:

1. GBP/USD can end the week higher on the back of the Fed-BoE divergence, attempting a decisive move above 1.33. EUR/GBP likely needs to close below 0.8400 to target a long-term low at 0.8339.

2. Gold’s pull back on Wednesday, after rising more than 24% this year looks like a case of the Fed rate cuts already being priced in. Bugs were probably more dovish than even bond markets. But a flight to the haven asset seems entirely logical now, with more all-time highs beckoning as history says the precious metal has surged in the last six easing cycles.

3. Stocks have also turned around, squarely on the view that the current “Goldilocks” scenario plays out. Ongoing rate cuts should provide support for growth, with the lack of a more severe slowdown keeping the risk mood buoyant. Fresh record highs for the Nasdaq are entirely possible, though a turn in data could upend the bullish momentum.