The Federal Reserve cut interest rates by 50 bps. As of July 2023, the cost of money in the US remained in the highest range of 5.25-5.50 per cent in more than two decades. In the initial reaction, the dollar was depreciating. The EUR/USD rallied towards 1.12. Erasing these movements and returning quotes to pre-decision levels were supported by the Fed chair's words at the press conference. Jerome Powell declared that after a significant adjustment, the FOMC does not need to rush into further cuts.
The start of easing was widely expected, but financial markets were strongly divided on the scale of today's reduction. The probability of a 0.5 percentage point move was estimated at around 60 per cent, while market pricing just hours before the decision spoke of a 115 bp cut before the end of the year. The FOMC's new interest rate projections indicate that 50 bp more cuts should be taken as the baseline scenario for the November and December meetings.
As recently as June, policymakers saw space for just one 25bp cut. This clearly demonstrates how strongly perceptions of the US economy's condition have changed in the meantime. A few weeks ago, there was even a fear in the markets that the relatively long period of tight monetary policy maintenance was, against a historical background, starting to hit the labour market hard and threatening a severe recession. As a result, votes prevailed in the Federal Open Market Committee (FOMC) in favour of a bold step that does not warrant theses of panic among monetary authorities.
The cuts in the US were inaugurated later than in other developed economies. In the past months, cuts have been initiated successively in Switzerland, Sweden, Canada, the euro area and the UK. A faster reduction in the cost of money in the coming quarters will compensate the Fed's delay caused by the temporary uptick in inflation. As a result, fintech Conotoxia stays negative on the long-term outlook for the US currency and forecasts a further decline in the dollar. By mid-2025, the EUR/USD should be in the region of 1.15. Global policy easing will also favour emerging market currencies.
This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.
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9 Sept 2024 8:15
NFP report does not indicate USD direction; risk aversion supports CHF demand
The Federal Reserve cut interest rates by 50 bps. As of July 2023, the cost of money in the US remained in the highest range of 5.25-5.50 per cent in more than two decades. In the initial reaction, the dollar was depreciating. The EUR/USD rallied towards 1.12. Erasing these movements and returning quotes to pre-decision levels were supported by the Fed chair's words at the press conference. Jerome Powell declared that after a significant adjustment, the FOMC does not need to rush into further cuts.
The start of easing was widely expected, but financial markets were strongly divided on the scale of today's reduction. The probability of a 0.5 percentage point move was estimated at around 60 per cent, while market pricing just hours before the decision spoke of a 115 bp cut before the end of the year. The FOMC's new interest rate projections indicate that 50 bp more cuts should be taken as the baseline scenario for the November and December meetings.
As recently as June, policymakers saw space for just one 25bp cut. This clearly demonstrates how strongly perceptions of the US economy's condition have changed in the meantime. A few weeks ago, there was even a fear in the markets that the relatively long period of tight monetary policy maintenance was, against a historical background, starting to hit the labour market hard and threatening a severe recession. As a result, votes prevailed in the Federal Open Market Committee (FOMC) in favour of a bold step that does not warrant theses of panic among monetary authorities.
The cuts in the US were inaugurated later than in other developed economies. In the past months, cuts have been initiated successively in Switzerland, Sweden, Canada, the euro area and the UK. A faster reduction in the cost of money in the coming quarters will compensate the Fed's delay caused by the temporary uptick in inflation. As a result, fintech Conotoxia stays negative on the long-term outlook for the US currency and forecasts a further decline in the dollar. By mid-2025, the EUR/USD should be in the region of 1.15. Global policy easing will also favour emerging market currencies.
See also:
NFP report does not indicate USD direction; risk aversion supports CHF demand
Turkish inflation drops by almost 10 percentage points
US dollar without support from Jackson Hole, EUR/USD touches 1.12
The Riksbank resumes rate cuts, but refrains from a 50 pb reduction
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