USD stabilises after sell off – Markets 'left with distinct lack of clarity' on US rate path
The Dollar has stabilised following its post-FOMC sell-off, although it continues to trade around its lowest level since the beginning of October. As expected, the fed funds rate was lowered by 25 basis points yesterday.
The vote was slightly more dovish than anticipated, and there were only two dissenters that opposed the cut, with one member favouring a 50bp move.
Powell delivered mixed messages during his press conference. He hinted that the Fed would sit on its hands in January, although he far from gave the impression that a long pause in the cycle was on the way, as he expressed a willingness for further cuts in order to support the labour market. Market participants have been left with a distinct lack of clarity as to the path ahead for US rates.
The deepening divide among FOMC participants was ever more apparent in the dot plot of rate projections. While the median dot was unchanged and consistent with just one cut in each of the next two years, the disparate views among officials provides the Fed with maximum optionality to pivot in either direction.
We favour two further cuts in 2026, in line with market pricing, but upcoming delayed data will be key.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
