The impact on the dollar of the Federal Reserve’s 50 basis point cut was muted by less dovish messaging from the Fed´s communication, particularly concerning the ‘dot plot’.
The Fed expects to lower rates at a relatively gradual pace. Officials now see just two more 25 basis point rate cuts this year, with four additional ones seen in 2025. Indeed, its estimate of the neutral level of rates in the US is still much higher than what markets are pricing in.
Economic data continues to track at or slightly better than expectations, consistent with solid growth in the 2-3% range, and high frequency labour market indicators like jobless claims show no upward trend in layoffs. We expect the PCE inflation data to confirm the modest rebound in inflationary pressures seen in the earlier CPI report, and think the US dollar may stabilise near current levels after a rough summer.
The information contained in this document was obtained from sources believed to be reliable, but its accuracy or completeness cannot be guaranteed. Any opinions expressed herein are in good faith, but are subject to change without notice. No liability accepted whatsoever for any direct or consequential loss arising from the use of this document.
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