USD sell off ahead of Fed rate meeting
|We’ve seen a broad sell-off in the dollar so far this week, as investors position themselves ahead of tonight’s FOMC announcement. Markets now see a 25 basis point cut as a certainty, and there are some strategists that are pencilling in a jumbo 50bp cut.
While we expect two or three of the doves to dissent in favour a larger move, we think that most of the committee will be wary of stoking inflation expectations and spooking the Treasury market.
Chair Powell appears set to strike a dovish note. He will likely no longer describe the jobs market as “solid”, while reiterating that any tariff-induced spike in inflation will probably be temporary.
The “dot plot” will also be shaved lower, with the median dots to possibly show three cuts this year and a couple more in 2026.
It will be interesting to see how the Dollar reacts in such a scenario as this would merely partly, rather than fully, close the gap between the Fed’s interest rate expectations and that held by the market.
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