He global dollar rose in a volatile session after the United States Federal Reserve (Fed) reduced the interest rates by half a percentage point, citing increased confidence that the inflation will continue to retreat towards the US central bank’s annual target of 2%.
The Fed cut rates to the 4.75/5% range and policymakers expect the reference rate fall another half percentage point by the end of this year, another full percentage point in 2025, and another final half percentage point in 2026 to end up in a range of 2.75% – 3.00%.
He dollar initially traded lower after the Fed announcement, but pared those losses after the U.S. central bank president Jerome Powell finished his press conference.
He dollar index rose 0.05% on the day to 100.970. It had previously hit 100.21, its lowest level since July 2023. The euro fell 0.01% to $1.111275. The greenback held steady at 142.370 Japanese yen.
In turn, the pound sterling, the best-performing G10 currency of the year, rose 0.28% to $1.3200, while the yuan strengthened to 7.0780 per dollar in overseas trading, making it its highest level since June 2023.
“It’s a more moderate cut. It certainly wasn’t an aggressive cut,” he said. Vassili Serebriakov, macro and currency strategist at UBS in New York.
“The way we thought about it before the announcement was that, as you know, a 50 basis point cut is negative for the dollar. If they had cut 25 basis points, there would be different scenarios in which the dollar could behave. But a 50 basis point cut is unequivocally negative for the dollar,” he said.
Following the Fed’s rate change, futures on the federal funds rate, which measures the cost of unsecured overnight borrowing between banks, have priced in about 72 basis points of further rate cuts this year.
A closely watched part of the yield curve United States Treasury The spread between two- and 10-year Treasury bond yields, considered a bellwether for economic expectations, hit its highest level since July 2022 following the Fed’s rate cut. It was last at 7 basis points.
Source: Ambito
