In December last year, markets were convinced that the FED would start cutting interest rates by March, which turned the USD bearish. As the economic data started to come this year, which has shown resilience in the US economy, investors pushed back on the FED cuts to May, which was keeping the USD bullish during January.

So now, it’s all about the timing when the Fed’s cycle of rate cuts begins. This is a topic of significant interest among economists and market participants because the fate of the USD depends on it, but there’s a lot of uncertainty at the moment. While there are varying opinions on when exactly the cuts will occur, the majority view is still centered around a rate cut in the second quarter of the year.

Specifically, there is a growing expectation that the June meeting could be the starting point for rate cuts. A recent Reuters survey of economists reflects this sentiment, with a narrow majority now considering the June 12 meeting as the base scenario for a rate cut. This shift in expectations is notable, as it represents a change from previous forecasts that anticipated rate cuts as early as March.

FED First Rate Cut Expectations

However, some analysts argue that the exact timing of the rate cuts may not have a significant impact on the value of the dollar. Instead, factors such as terminal rates (the level at which the Fed stopped hiking rates) and the total amount of rate reduction relative to other central banks are considered more important.

Higher Fed terminal rates could potentially support the dollar, but market sentiment and economic uncertainties may currently be outweighing this possibility. Overall, while the timing of the rate cuts is closely monitored by market participants, other factors such as economic data and geopolitical developments will continue to play a crucial role in shaping market expectations and the USD sentiment, so we are following the data.