Welcome to Lost In The Exchange - The essential FX newsletter to keep you informed and prepared for the week ahead.
In this weeks copy:
The Fed take bold action at 50bp cuts
PMI data kicking off the week, expecting some sharp manipulation towards 1.1200 on EURUSD
XAUUSD bulls remain in control, no sign of slowing
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The FED kick off their first rate cuts with a bold 50bp slash
Quite interestingly the market sentiment around a large rate cut had shifted quickly in the weeks leading up to the FOMC announcement. This was largely due to weak labour market data, encouraging the fed to be bold with a 50bp cut instead of the 25bp.
As the data was released, we seen the CME Fed watch tool shift in sentiment towards larger rate cuts, giving the USD an early dump in the days before the actual release.
Investors also got a look at the dot plot, which outlines the expected cutting cycle to come from each individual policy maker. The median path sees the Fed’s fund rate between 4.25% - 4.5%, substantially lower than the expectations from June.
Going forward rate cuts remain data dependant, but we should note that this bold cut is not necessarily a pre cursor for future cycles, but rather just a bold move to kick off.
What does this mean for the USD?
Well, signals to the market came early as the bold cut was priced in early. In general further weakness is expected across USD pairs, however, crucially DXY remains above the physiological level of 100, which bears will have a hard time crossing.
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