Fed Chair Powell’s remarks yesterday have lowered expectations regarding the pace of rate cuts in the USA.

1. Markets have been moved by remarks yesterday by Fed Chair Powell which were not particularly strong, but in the strongly dovish sentimental environment, they made an impact. CME’s FedWatch tool now shows that almost 62% expect a rate cut at the Fed’s next policy meeting of only 0.25%. This shift in sentiment has sent the US Dollar higher, notably against a weak Japanese Yen, while US Treasury Yields have also risen. Despite this environment, major US equity indices have traded higher, with the S&P 500 Index very close to a new record high, which is a divergently bullish sign for US stocks.
2. German Preliminary CPI data released yesterday was a fraction lower than expected, with analysts forecasting a month-on-month increase of 0.1% but CPI was flat.
3. In the Forex market, the Australian Dollar has been the strongest major currency since the Tokyo open today, while the Japanese Yen has been the weakest. This puts the AUD/JPY currency cross in focus and points to a continuation of risk-on sentiment.
4. Israeli troops have entered Lebanese territory, with Israel stating it is conducting a limited operation to remove the Hezbollah from its border area. The US is now formally backing this operation, changing its tone from yesterday. Global risk sentiment is seemingly unaffected.
5. There will be releases today of three potentially highly important data items to the Forex market:

1. Eurozone CPI Flash Estimate
2. US ISM Manufacturing PMI
3. US JOLTS Job Openings

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