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What’s happening: The US dollar recorded gains on Thursday, after the Federal Reserve announced its first rate cut in over four years.
What happened: The Fed cut its overnight interest rate by 50 basis points (bps) to the 4.75%-5.00% range.
The US dollar continued to move higher against the euro and the British pound this morning.
Why it matters: The Federal Reserve slashed its benchmark interest rate by a higher percentage than was widely expected. This signalled increased confidence of the policymakers in inflation continuing to ease, albeit gradually, to reach the central bank’s 2% target.
The Fed said that it expects to lower the benchmark rate by another 50 bps by the end of this year and by 100 bps next year. In 2026, the interest rates could be lowered by another 50bps to the 2.75%-3.00% range.
The Fed also lowered its projection for economic growth to 2%, from the 2.1% forecast after its June meeting. Inflation expectations were revised downward for both 2024 and 2025, while the forecast for the unemployment rate was increased for 2024, 2025 and 2026.
The greenback remained volatile following the Fed announcement, recording losses after the end of the press conference by Chairman Jerome Powell. During his press conference, Powell added that he does not see any signals of a recession or an economic downturn ahead.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, had fallen to its weakest level since July 2023 on Wednesday, but recovered the losses on Thursday. The index gained around 0.8% to reach 101.40 this morning.
The EUR/USD forex pair fell 0.4% to 1.1074 this morning. The British pound, the top performing G10 currency this year, declined 0.4% versus the US dollar to 1.3159. The USD/JPY forex pair jumped around 1.2% to 143.92.
What to watch: Investors await the release of economic data on current account, jobless claims and Philadelphia Fed manufacturing index from the US today. The number of people claiming jobless benefits in the US, which rose by 2,000 to 230,000 in the week ending September 7, is expected to rise to 234,000 in the latest week.
Analysts expect the US current account deficit to widen to $260 billion in the second quarter, from $237.6 billion in the first quarter. The Philadelphia Fed Manufacturing Index, which dipped to a reading of -7 in August, is expected to improve to -1 in September.
Context: London stocks fell on Wednesday, as investors digested the latest inflation data.
Details: Data released on Wednesday showed UK’s annual inflation rate had steadied at 2.2% in August, which came in-line with market expectations. Compared to the previous month, the CPI rose 0.3% in August, after declining 0.2% in July.
Factory gate prices for goods produced by manufacturers increased 0.2% year-over-year in August, easing from a 0.8% rise in July. The figure was also better than estimates of a 0.5% rise. The latest reading marked the smallest increase in producer prices since the decline recorded in January 2024.
The FTSE 100 declined by 0.68% to close at 8,253.68 on Wednesday, snapping a four-session rally. The FTSE 250 Index shed 0.52% to settle at 20,835.31.
What to watch: Investors await the Bank of England’s interest rate decision today. The BoE is widely expected to keep its key interest rate unchanged at 5.00%, after cutting rates by 25bps in August.
Other Markets: US trading indices closed lower on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 down by 0.25%, 0.29% and 0.45%, respectively.
Brazil’s President Luiz Inacio Lula da Silva discussed the Ukraine invasion during a phone conversation with Russia’s President Vladimir Putin. The news sent the RUB/USD pair higher in forex trading this morning.
The Hong Kong Monetary Authority lowered its base rate by 50bps to 5.25%, which exerted pressure on the HKD/USD forex pair.
Australia’s unemployment remained at 4.2% in August, unchanged from the 2.5 high level recorded in July, which sent the AUD/USD pair lower in forex trading this morning.
New Zealand’s economy shrank by 0.5% year-over-year in the second quarter, following a 0.5% expansion in the previous quarter, exerting pressure on the NZD/USD forex pair.
The Saudi Central Bank cut its repo rate by 50bps to 5.50% during its recent meeting, which sent the SAR/USD pair lower in forex trading this morning.
Eurozone’s current account and European Union new passenger car registrations, Italy’s current account, South Africa’s value of building plans passed and interest rate decision, Turkey’s gross foreign exchange reserves and Central Bank of Turkey’s interest rate decision, India’s money supply M3, US continuing jobless claims, existing home sales, CB leading index and natural gas stocks change, as well as Argentina’s balance of trade and unemployment rate.
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