get_geodata_regions(); If This Is the Last Rate Cut From the FED, the USD Will Likely Reverse Higher - Forex News by FX Leaders
It's certain Trump likes rate cuts

If This Is the Last Rate Cut From the FED, the USD Will Likely Reverse Higher

Posted Saturday, October 26, 2019 by
Skerdian Meta • 2 min read

The FED has turned pretty dovish in recent months. They were the most hawkish of major central banks for several years, until Q2 of this year. The FED hiked interest rates nine times in total since December 2015, which continued until December last year. But, while the global economy kept weakening for more than a year, the FED kept a hawkish bias until summer this year.

It was only by summer that the FED starting to see the bigger picture. The global economy was headed towards stagnation, with manufacturing in contraction in many major countries, which now has fallen in recession in Germany and the Eurozone. The global weakness caught up with the US economy and the FED has panicked, or at least that’s how it looks like.

The ISM manufacturing fell in contraction in August and in the contraction deepened further in September, pointing to a recession like in Germany for this sector of the US economy. The FED has cut interest rates in the last two meetings, bringing them to 2.00% from 2.50% and they are widely anticipated to cut them by 25 bps again on Wednesday. This doesn’t look very professional from them, turning really dovish after being strongly hawkish until very recently. Donald Trump did his part to be honest, warning them not to hike rates too fast.

But, here we are now, waiting for a third cut this month. So, the FED is now one of the most dovish major central banks together with the Reserve bank of Australia. The USD has felt some pressure from this, but considering that the FED has cut twice and markets are expecting a rate cut in October, which would make three cuts in the last three meeting, the USD has reacted pretty well.

After this rate cut, the FED is expected to pause. If that’s the case, then the USD should turn bullish, since it could be the last cut for some time, while other major central banks are expected to remain dovish. Although, we have to hear Powell’s press conference and read between the lines.

If this is indeed the last rate cut for the time being, then I expect the USD to rally higher, if Powell doesn’t sound too dovish either. But, since the partial trade deal between US and China has been reached, it’s likely that we might hear some positive comments from Powell which would add to the positive side for the USD. So, the odds are pointing up for the Buck after this event, despite yet another rate cut from the FED.

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