The U.S. Dollar is trading in stronger ranges after yesterday’s Fed event represented a “hawkish cut,” as we predicted, with a 25 basis-point cut to interest rates accompanied by commentary suggesting officials will be cautious with their moves.
Overview
This was the first time in over 30 years the Federal Reserve chose to cut interest rates, while core inflation is greater than 2.9%. In his press conference, Chairman Jerome Powell sounded relaxed and did not exude much in terms of gloom and doom, but rather said labor would become more neutral and that inflation remained elevated. Although there is recognition of sluggishness, there is a lack of consensus about looking into slashing borrowing costs into 2026.
While officials agreed on cutting 25bps, only one voter was arguing for 50 bps. The Fed’s independence and alignment with economic goals will come up, but Powell refused to comment on outside pressures. The message delivered was one of mixed signals: there is concern about prices, but not enough to refrain from lowering interest rates. Slashes were not promised, but looser policy is not entirely off the table. Since the action is perceived as a boost to the financial system, the Buck is up and correlates with expansion across equity exchanges.
What to Watch This Week…
- Bank of Japan Friday
- Monex USA Online is always open
The complete Economic Calendar can be found here.
GBP ⇓
The Pound is down by over half a percent following the Bank of England’s decision and market reaction to a “hawkish cut” by the Fed. Unlike Fed members, the BOE saw no need to lower rates, concerned primarily with the risk of exacerbating inflationary pressures. There was no full consensus, with two out of the nine voters choosing to cut by 25bps. While the economy has surprised with its resilience, the BOE wants to minimize the risks of stimulating prices. It is becoming clear however that some economists are more concerned about the stagnant state of productivity and investment.
JPY ⇓
The Japanese Yen is down by close to 1.0% against the Buck ahead of the Bank of Japan policy announcement tomorrow. While the start of 2025 was characterized by speculation that the Bank of Japan would be “hawkish,” that perception is fading as the political power turmoil overshadows the country’s ability to increase interest rates. The most favored candidate to take over as Prime Minister, Sanae Takaichi, is not in favor of contractionary monetary policies. We shall see how the fiscal and monetary world clash with politics in Japan now pushing for more spending and easier borrowing.
