Fed Rate Cut Talking Points:
- The FOMC cut a categorical seductiveness rate currently from 2.25-2.50% to 2.00-2.25%; rates markets were pricing in a 100% possibility of a 25-bps currently and an 18% possibility of a 50-bps cut.
- The Jul Fed assembly also suggested that a FOMC will stop a circuitous down of a change piece on Aug 1 – effectively finale what was famous as “qualitative tightening,” or QT.
- The Fed’s process matter done transparent that it will continue to guard outmost risks, radically observant that if a US-China trade fight rages, a FOMC will be in easing mode.
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The Federal Reserve has answered marketplace participants’ calls for some-more dovish policy. The Jul Fed assembly strictly outlines a finish of a rate travel cycle that began in Dec 2015, with a initial of potentially several 25-bps rate cuts entrance down a tube today. The FOMC cut a categorical seductiveness rate currently from 2.25-2.50% to 2.00-2.25%; rates markets were pricing in a 1000% possibility of a 25-bps currently and an 18% possibility of a 50-bps cut.
US-China Trade War on Powell’s Mind
The Fed’s process matter done transparent that it will continue to guard outmost risks, radically observant that if a US-China trade fight rages, a FOMC will be in easing mode. “This movement supports a Committee’s perspective that postulated enlargement of mercantile activity, clever labor marketplace conditions, and acceleration nearby a Committee’s symmetric 2 percent design are a many expected outcomes, though uncertainties about this opinion remain.
“This comment will take into comment a far-reaching operation of information, including measures of labor marketplace conditions, indicators of acceleration pressures and acceleration expectations, and readings on financial and general developments.” International developments don’t usually meant a US-China trade war: concerns about tellurian appetite reserve given geopolitical tensions around Iran and a Strait of Hormuz; and who can forget about Brexit?
The Jul Fed assembly also suggested that a FOMC will stop a circuitous down of a change piece on Aug 1 – effectively finale what was famous as ‘qualitative tightening,’ or QT.
Not a Unanimous Decision
Voting for a 25-bps rate cut currently were Fed Chair Powell, Fed Vice Chair Williams, and house members Bowman, Brainard, Bullard, Clarida, Evans, and Quarles. Voting opposite a movement were George and Rosengren, who elite to keep rates on hold. This voting relapse is assisting surprise marketplace participants that their expectations for a 50-bps rate cut were overblown; a dissenters didn’t wish to cut during all.
In turn, a voting relapse suggests that a FOMC isn’t as dovish as formerly thought. In response, seductiveness rate markets have started to bonus reduce contingency of additional rate cuts in 2019. To wit: before to a Jul Fed meeting, there was a 76% possibility of a second 25-bps rate cut in Sep and a 56% possibility of a third 25-bps rate cut in December; after a Jul Fed meeting, there is a 67% possibility of a second 25-bps rate cut in Sep and a 50% possibility of a third 25-bps rate cut in December.
As we’ve been indicating out for several weeks (including many recently, yesterday), receding Fed rate cut contingency are useful for a US Dollar (via a DXY Index). Today, with rate cut contingency holding a step back, a US Dollar has been means to convene to uninformed yearly highs.
DXY INDEX TECHNICAL ANALYSIS: DAILY PRICE CHART (APRIL TO JULY 2019) (CHART 1)
Following a Jul Fed meeting, a US Dollar rallied to a uninformed yearly high, with a DXY Index eclipsing a May high set during 98.37, substantiating a new high year-to-date during 98.42. A tighten during 98.42 or above would not usually paint a top tighten of a year, though it would come alongside a pierce behind above a rising trendline from a Feb 2018 and Mar 2019 lows in a form of a bullish outward engulfing bar candle.
Fed Chair Jerome Powell’s press discussion starts during 14:30 EDT/18:30 GMT. Follow along in real-time in a DailyFX Real Time News feed.
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— Written by Christopher Vecchio, CFA, Senior Currency Strategist
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