- The US Dollar holds its recovery move as upbeat US economic data has dashed market expectations that the Fed will begin its policy-easing cycle with an aggressive approach. Market participants started anticipating a 50-basis-point (bps) interest-rate reduction from the Fed in September amid worries that the US could enter a recession.
- According to the CME FedWatch tool, 30-day Federal Finds Futures pricing data shows that the likelihood of a 50-bps interest-rate reduction has diminished to 29.5% from the 51% recorded a week ago. However, the speculation that the Fed will cut rates in September remains intact.
- Meanwhile, Fed policymakers have also admitted that interest rate cuts have become appropriate as risks have now widened to the labor market too. This week, Atlanta Fed Bank President Raphael Bostic said in an interview with the Financial Times (FT) that he is open to rate cuts in September. When asked about the rate cut size, Bostic said that he is comfortable with half a percentage point if the labor market deteriorates further.
- Going forward, investors will focus on Fed Chair Jerome Powell’s speech at the upcoming Jackson Hole (JH) symposium, which will be held from August 22-24. Fed Powell is expected to provide cues about the interest rate cut path as inflation remains on track to return to the desired rate of 2% and the labor market is not overheated anymore.
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