Fundies: Truths and Rumours.
"Why is the Dollar So Strong Ahead of a Rate Cut?
Tomorrow's Federal Reserve monetary policy announcement is the biggest event risk of the week and while the central bank is widely expected to lower interest rates for the second time this year, USD/JPY is trading at its strongest level in more than a month. Typically interest rate cuts drive currencies lower, but as we saw with last week's European Central Bank meeting when the euro bottomed after aggressive monetary easing, its rarely that simple. Expectations are one of the main reasons why investors are buying USD/JPY ahead of the central bank meeting. The market has completely discounted a quarter point cut but Chairman Jay Powell may not commit to much more beyond that. So while a rate cut this month is a done deal, Powell's guidance could help not hurt the dollar.
In fact, everything we heard from Federal Reserve officials suggests that they are reluctant to ease. In our note last week we highlighted all of the comments from Fed Presidents whocasted doubt on the need for easing. This hesitance was reaffirmed by FOMC voter Rosengren who said that 'no immediate Fed action is needed if data stays on track.'
If Powell laces the rate cut with optimism, the biggest beneficiary should be USD/JPY, which willmake a break of 109. EUR/USD could also u-turn for a trip back below 1.10. If we are wrong and Powell is unambiguously dovish, leaving the door open easing in December, USD/JPY will head for a test 107. In addition to the rate decision, the Fed will also be updating their economic projections which could move the dollar as well." - Kathy Lien
Regards and Stay fluid,
Ty
"Why is the Dollar So Strong Ahead of a Rate Cut?
Tomorrow's Federal Reserve monetary policy announcement is the biggest event risk of the week and while the central bank is widely expected to lower interest rates for the second time this year, USD/JPY is trading at its strongest level in more than a month. Typically interest rate cuts drive currencies lower, but as we saw with last week's European Central Bank meeting when the euro bottomed after aggressive monetary easing, its rarely that simple. Expectations are one of the main reasons why investors are buying USD/JPY ahead of the central bank meeting. The market has completely discounted a quarter point cut but Chairman Jay Powell may not commit to much more beyond that. So while a rate cut this month is a done deal, Powell's guidance could help not hurt the dollar.
In fact, everything we heard from Federal Reserve officials suggests that they are reluctant to ease. In our note last week we highlighted all of the comments from Fed Presidents whocasted doubt on the need for easing. This hesitance was reaffirmed by FOMC voter Rosengren who said that 'no immediate Fed action is needed if data stays on track.'
If Powell laces the rate cut with optimism, the biggest beneficiary should be USD/JPY, which willmake a break of 109. EUR/USD could also u-turn for a trip back below 1.10. If we are wrong and Powell is unambiguously dovish, leaving the door open easing in December, USD/JPY will head for a test 107. In addition to the rate decision, the Fed will also be updating their economic projections which could move the dollar as well." - Kathy Lien
Regards and Stay fluid,
Ty
My job: I speculate and manage risk.
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