The U.S. Dollar is trading in fresh new highs across the board after a “hawkish” Fed event, with its overall value reaching its strongest since the end of July, per the Bloomberg Dollar Spot Index
Overview
Although the FOMC decided to cut interest rates as expected by 25 basis points, there was no consensus amongst voting members with one arguing for 50bps while another chose to keep borrowing costs unchanged.
The latter, Fed Kansas City President Jeffrey Schmid, was a major surprise to markets, particularly equities and treasuries, where traders were looking for signals that more easing is coming from monetary policymakers. However, this did not materialize as it was a preamble to a press conference in which Chairman Jerome Powell explained that even a 25bps reduction for their December 10th meeting is not guaranteed. This naturally fueled a Dollar rally as World Interest Rate Probability chances of a slash are down to 69.0% after ranging in the 90-99.0% range yesterday morning.
With the U.S. government shutdown ongoing, we will not have Jobless Claims nor official numbers for Q3 Gross Domestic Product. We will continue to monitor wat gauges we can assess and rely on for analytical purposes. For now, the narrative for markets is very headline-driven especially after earlier reports that the meeting in South Korea between China and American leaders achieved the lowering of tensions and a deal in which pharmaceutical tariffs are immediately brought down from 20.0% duties to 10.0%. China is said to have made concessions on special metals and other items. Thus far, it has received mixed reactions, and we shall see the effects.
What to Watch This Week…
- Bank of Japan meeting and ECB on Thursday
- Monex USA Online is always open
EUR ⇓
The Euro dropped to its weakest point since end of July primarily as a result of the shock that came with the Fed event being less about expansionary policy and more about uncertainty. At the time of writing, the European Central Bank was announcing its decision to keep interest rates at current levels of 2.15% followed by releases of Confidence and growth wages being positive. After surprises in France and Italy, third-quarter Gross Domestic Product came in at 0.2% beating its 0.1% estimate. It is possible the decline for the shared currency is short-lived as we get ready to hear from ECB President Christine Lagarde.
MXN ⇓
The Mexican Peso is falling and has passed its weakest point in over two weeks after the Fed’s meeting as well as poor growth data figures. GDP for Q3 was confirmed as a (-0.3%) contraction. This increases the chances that the central bank, Banxico, will be looking to act more loosely and perhaps get more aggressive with interest-rate slashes with 50bps probably in the horizon. The policymakers can cut with more determination as the rate stands at 7.5%.
