Fed likely to disappoint uber-dovish investors
Sept 18 (Reuters) -Investors betting that the Federal Reserve willgo big when it begins its widely expected easing cycle on Wednesday are likely to be disappointed as the U.S. economy's performance simplydoes not warrant an aggressive rate cut.
U.S. rate futures currently price a 65%chance of a 50 basis-point rate reduction and 116 bpsin cuts this year according to LSEG data FEDWATCH.
Tuesday'sraft of upbeat economic indicatorsled the Atlanta Fed to raiseits Q3 GDP growth estimate to a 3.0% annualized rate from 2.5%.Financial conditions are at their loosest since November 2021, according to the Chicago Fed. The labor market is slowing but at a measured pace and inflation, while waning, remains sticky.
Weighing all theevidence, the Fed is likely to settle for a 25 bpscut and Chair Jerome Powell may reiterate data dependency at his post-meeting news conference. The Fed's updateddot plot is also unlikely to corroborate the rapid easing cycle priced in, instead indicating a more measured pace of cuts.
This could beconstrued as a "hawkish cut", forcinginvestors who had rushed into bets on an outsized move, based on recent news reports,to cover positions.
The U.S. dollar index =USDhas solid support at 100.51-100.58, a base that has held five times since late August. A rally to 101.59 and the 101.91 September highis likely. A loss of support opens a test of 99.55, the 2023 low.
A Fed disappointment could affect the overbought, yield-sensitiveJapanese yen the most, allowing USD/JPY to test143.39 and 144.29.
For more click on FXBUZ
Krishna Kumar is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
