USD firms as Fed signals slower pace of easing – BBH

US Dollar (USD) and Treasury yields are consolidating their post FOMC meeting gains. The US and China agreed to a one year trade truce. Under the deal, both countries plan to cancel some tariffs, roll back export controls and reduce other trade barriers. Still, risk assets are trading on the defensive as hints of the agreement were already apparent earlier this week and the Fed dampened easing expectations, BBH FX analysts report.

FOMC delivers hawkish 25bps cut to 3.75–4.00%

"FOMC delivered a hawkish cut yesterday. As was widely expected, the FOMC followed up with another 25bps Fed funds rate cut to 3.75%-4.00%. The press release warned again that 'that downside risks to employment rose in recent months', suggesting more cuts are in the pipeline."

"However, the vote split and Fed Chair Jay Powell’s comments point to a more measured pace of easing ahead. That can help lift USD towards its August high. Fed Governor Stephen Miran voted again for a 50bps cut, which was well telegraphed ahead of time. But unlike at the September meeting, one participant (Kansas City Fed president Jeff Schmid) supported keeping rates on hold."

"Importantly, Powell stressed that 'A further reduction in the policy rate at the December meeting is not a foregone conclusion, far from it', adding 'there's a growing chorus' supporting skipping a cut ahead. Fed funds futures trimmed odds of a December 25bps rate cut by nearly 0.20pts to 70% following Powell’s comments. Finally, the FOMC confirmed it will conclude the reduction of its aggregate securities holdings on December 1. This is to ensure liquidity condition remains ample and has minimal monetary policy implication."