Dollar Falls After Fed Rate Cut, The U.S. dollar edged lower on Thursday after a larger than usual interest rate cut from the U.S.
Expectations had drifted towards a dovish outcome in the days before the decision, with money markets pricing around a 65 per cent chance of a 50 basis point (bp) cut on Wednesday. Economists polled by Reuters were leaning towards a 25-bp cut.
“The cut appears to be a pre-emptive one with both accompanying dot plot and press conference comments highlighting more caution when it comes to the pace and magnitude of easing policy going forward,” said Salman Ahmed, global head of strategic asset allocation at Fidelity International. The Fed’s dot plot chart points to policymakers’ future rate expectations.
The dollar index, which measures the greenback against a basket of six peers, was down 0.15 per cent to 100.71, not far from the level before the Fed decision. It slid to an over one-year low of 100.21 in the previous session.
The big news is “the trimming of growth forecasts and the sharp downward revision of the dots,” said Guy Stear, head of developed markets strategy at the Amundi Investment Institute.
“The Fed seems confident that it has won the battle against inflation, and recognizes that monetary policy is now too restrictive, especially given the threats to growth.”
Fed policymakers on Wednesday projected the benchmark interest rate would fall by another half of a percentage point by the end of this year, a full percentage point next year and half of a percentage point in 2026, though they said the outlook that far into the future was uncertain.
“That is why there was no additional U.S. dollar weakness yesterday. The dollar had already weakened in the days and weeks before,” said Ulrich Leuchtmann, head of forex and commodity research at Commerzbank.
Some analysts expect the greenback will fall next year as the Fed keeps cutting rates.
The Australian and New Zealand dollars drew support from domestic data surprises.
