Forex analytics. The dollar requires a rate cut – ForexNews.PRO
The chances of a reduction in the federal funds rate are falling, and the EURUSD is falling. What’s the matter? With the ECB being out of the game due to the end of the monetary expansion cycle, the euro exchange rate against the US dollar is in the hands of the Fed. However, markets are growing on expectations, and the central bank has two options for further actions. Cut and hold. Or pause and then loosen up.
Prior to the speech by New York Fed President John Williams, the markets were confident in the latter. They say the lack of data will make the Fed extremely cautious. It’s not for nothing that Jerome Powell said that when you move in fog, you need to slow down. The highlight was the publication of the minutes of the October FOMC meeting, which was dominated by the hawks. As a result, the chances of cutting the federal funds rate in December dropped to 28%.
However, this was a bad scenario for the US dollar. The pause at the end of the year meant the Fed’s dovish rhetoric. Hints of a loosening of monetary policy would make the greenbacks vulnerable. Hence, the EURUSD purchase plan was born on a decline.
John Williams’ speech turned everything upside down. The president of the Federal Reserve Bank of New York said that rates may fall in the near future. It was followed by a speech by Christopher Waller. A reputable FOMC official insisted on continuing the cycle of monetary expansion in December, as the risks of a sharp rise in unemployment are stronger than the likelihood of an acceleration in inflation. Mary Daly, head of the Federal Reserve Bank of San Francisco, shares the same opinion. As a result, the odds of a rate cut in December jumped to 80%. Investors are considering the first option for the central bank’s actions – “cut and hold.” It’s not as bad for the US dollar as the alternative.
Markets are growing on expectations. It often happens that after loosening monetary policy, the currency strengthens. There is no need to go far for examples: after the September and October monetary expansion of the Fed, the greenback increased. At first, the limited potential for rate cuts played into his hands, followed by hopes for a pause in the cycle.
However, what about inflation? By definition, it should grow in a strong economy. The leading indicator from the Federal Reserve Bank of Atlanta predicts a 4.2% acceleration in GDP in the third quarter. The answer is simple – if it weren’t for artificial intelligence, the United States would look much weaker. The lion’s share of investments is related to AI, and the growth of technology stocks makes Americans richer and increases consumption.
