FX round-up: Pound dips after Fed, EM FX well-behaved

Sterling jumped immediately after the US central bank's policy statement was released, as traders seized on to the fact that rate-setters in Washington had chosen to stop referring to their policy settings as "accommodative".

So while the pound hit an intra-day high of 1.3218, it ended the session at 1.3164 and 0.15% lower.

Against the euro on the other hand, Sterling edged up by 0.12% to change hands at 1.1215.

In the words of Kathleen Brooks, Research Director at Capital Index: "The key takeaways from the Powell press conference is that he still feels that policy is accommodative, even though the Fed removed the word accommodative from their statement. The market decided to take a punt on a stronger dollar at the start of this press conference, however, in our view this meeting is mostly neutral for the dollar.

"One thing is for sure, Fed chair Powell is not going to be pressured into cutting rates on the back of President Trump's preference for lower rates. In fact, today's meeting is a clear signal that rates are moving higher in the coming months, including in December.

"[...] This may be enough to drag the USD higher for 50-100 pips, but it is not enough to drive the dollar significantly higher in the next 24 – 48 hours."

Significantly, towards the start of the presser, Powell explained that removing "accommodative" from the statement was not a 'signal'.

Indeed, as analysts at Rabobank pointed out, the Fed's Summary of Economic Projections showed that there were now 12 officials anticipating four rate hikes in 2019 and four expecting three interest rate increases.

In June, the ratio had stood at eight officials in favour of four rate hikes versus seven who were predicting three increases.

To take note of, Powell also noted how meeting participants had nudged their estimate of the appropriate 'longer run' level for the Fed funds rate up by a tenth of a percentage point to 3.0%.

He also indicated that the Fed was cognisant of the potential impact that its policies might have on emerging markets, adding that the best contribution it could make to stability was to be transparent in its decision-making while taking the most appropriate decisions.

Against that backdrop, the US dollar ceded 1.10% against the Turkish lira to 6.0938, 0.76% versus the Mexican peso to 18.8475 and 1.03% against the Brazilian real to 4.0326.

The Russian rouble and Chinese yuan were a smidgen lower with the former possibly also being influenced by a dip in crude oil prices.