Fed day is here, and the FOMC is widely-expected to cut rates by 25 basis points at this afternoon’s meeting, marking the first rate cut from the bank in more than ten years.
The bigger question is what the Fed has planned for the rest of the year. If the FOMC takes on a dovish tone, this could allow for a return of USD-weakness, similar to what was seen in the month of June. But, if the bank pitches this as a ‘one and done’ after last year’s overtightening, USD strength may remain on the cards and this can create a lot of interesting volatility scenarios in the remainder of this year.
FOMC ON DECK
Fed day is here and later this afternoon, markets are heavily-expecting to get a rate cut out of the bank for the first time in more than ten years. The FOMC has hiked rates nine times in the past four years, and seven times in the past two. But as pressure began to show in risk markets in Q4 of 2018, the bank has slowly been bringing in a more-dovish outlook and the first half of this year was marked by diminishing expectations around US rates.
This is where the proverbial rubber meets the road: Markets have shown a 100% probability of getting a cut at this meeting for more than a month and there have even been vacillating expectations around seeing a 50 basis point cut. An off-hand comment from NY Fed President John Williams a couple of weeks ago was widely-inferred to mean that the bank was looking to be aggressive here. That scenario brought on a quick dose of USD-weakness as Gold prices broke out; but those themes soon softened when the NY Fed walked back those earlier comments from John Williams.