US Dollar In Focus As Markets Price In FOMC Interest Rate Cut

Given the growing global market worries, which has been triggered by the spread of Coronavirus, central bank action is anticipated from the FOMC.

There are now growing expectations that the U.S. Federal Reserve will be forced to cut interest rates, as a potential cushion of any hit to economic growth from the spread of the coronavirus. The federal funds futures markets indicate around some 85% probability the central bank’s benchmark overnight lending rate would be at least a quarter percentage point lower after that meeting’s conclusion, according to the CME FedWatch tool.

In terms of recent commentary, from Fed members; Cleveland Federal Reserve President Loretta Mester was the latest to take note of the risk. She was speaking to the National Association for Business Economics conference in Washington, she described the outbreak as a “big risk.”

Mester said: “At this point, it is difficult to assess the magnitude of the economic effects, but this new source of uncertainty is something I will be carefully monitoring,” However, she added:

“I just caution that you don’t want to over-react to volatility in the markets if you’re a monetary policymaker,”

What does this mean for USD?

Firstly, as a recap, last Friday, saw the U.S. report a survey of U.S. purchasing managers showing that activity in both the services and manufacturing sectors appeared to have greatly stalled. It was largely attributed to the outbreak, which saw disrupted global supply networks.

Due to this lacklustre report, USD was forced to take a harsh beating, which was very much an incuse anyway for a needed correction. The USD had been on a strong bull run massively outperforming its peers, since the get-go of 2020.

Every piece of U.S. data now is going to be heavily scrutinized, anything not up to market satisfaction, then USD will be beaten. As players will further price in action from the FOMC, which could even be more than once this year.


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