- The Fed cut interest rates as expected during the meeting on Wednesday.
- This week, many more policymakers will speak and reveal their views on future policy moves.
- Market participants will watch the core PCE price index report on Friday.
Currency futures gained on Monday as the dollar resumed its pre-FOMC meeting decline. The drop in the greenback came as market participants looked forward to Fed policymaker speeches. These speeches could further highlight the central bank’s new dovish tone amid labor market weakness.
Dollar Index (Source: TradingView)
The Fed cut interest rates as expected during the meeting on Wednesday. Moreover, Powell admitted that the labor market had softened significantly. Therefore, the risks to growth outweighed the risk of higher inflation. Consequently, the central bank would keep lowering borrowing costs over the remaining part of the year.
However, he emphasized that the Fed would keep monitoring inflation. Additionally, he said the path for policy was not preset. Therefore, the outlook could change with incoming data. The decision and tone during the meeting aligned mainly with expectations. Thus, there were few surprises, allowing most traders to lock in their profits. This led to a surge in the dollar from its pre-meeting lows.
Market focus is now shifting to future rate cuts. Already, the Fed has assumed a more dovish tone. However, traders have only heard from Powell since the meeting. This week, many more policymakers will speak and reveal their views on the future. Given the labor market weakness, there is a chance most will be dovish. This could exert further downward pressure on the dollar, allowing currency futures to climb.
At the same time, market participants will watch the core PCE price index report on Friday. The report is a favored Fed tool for measuring inflation. Therefore, it will influence the outlook for rate cuts.
Meanwhile, market participants closely watched policy meetings in Canada, the UK, and Japan, which had a significant impact on their respective currencies. In Canada, the Bank of Canada cut interest rates as expected due to the recent decline in the labor market.
Meanwhile, the Bank of England kept interest rates unchanged. Moreover, policymakers noted the challenge they have in balancing growth concerns and high inflation. The pound rallied after the meeting.
Finally, the Bank of Japan kept interest rates unchanged as expected. However, two policymakers unexpectedly voted to hike interest rates. This highlighted growing internal pressure to tighten policy, which in turn boosted the yen.