Today's data from the US revealed that the core Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve preferred gauge of inflation, ticked up to 1.6% in June but fell short of the market expectation of 1.7%. Nevertheless, the market reaction to the data stayed muted as investors remain on the sidelines ahead of tomorrow's FOMC announcements.
Commenting on a possible market reaction to tomorrow's event, "While we expect one further cut from the FOMC this year, the market is pricing a further three cuts beyond that by mid-2020. For that to prove correct, the household sector will have to be hit by current and/or future uncertainties," said Westpac analysts.
"If the status quo is maintained on trade and fiscal policy, this is unlikely, but the market is unlikely quickly to give up on current pricing, so any bearish outcome for US 10yr yields is not likely to be material or sustained for an extended period. So we remain better buyers on dips and expect yields to remain within the current 2-2.15% trading range.“