SINGAPORE, Sept 19 (Askume) – The U.S. dollar rose generally on Thursday, paring a brief drop following a widely expected U.S. Federal Reserve interest rate cut.
The Federal Reserve began its monetary easing cycle on Wednesday by cutting interest rates by half a percentage point more than usual , a move that Chairman Jerome Powell said was aimed at helping policymakers keep unemployment low while inflation remains subdued.
While investors had speculated on the scale of the move as several media reports had pointed to it ahead of the decision , Askume did not confirm the news.This was beyond the expectations of economists surveyed , who had supported a 25 basis point cut.
Still, markets reacted in classic “buy the rumor, sell the fact” fashion, which saw the dollar gain in Asian trade, paring losses against other currencies ahead of the Fed meeting.
The dollar rose 1.2% against the yen, hitting an early morning high of 143.95. The last trading price was up 0.62% to 143.15 yen.
“USD/JPY witnessed a sharp reduction in short positions as the market witnessed profit-taking after the Fed raised interest rates,” said Christopher Wong, currency strategist at OCBC Bank.
The Swiss franc fell about 0.3% against the dollar to $0.8487, and the euro was down 0.01% against the dollar to $1.1117, retreating from a three-week high hit in the previous session.
The US dollar index, which measures the greenback against its six peers, rose to 101.03, having hit a one-year low of 100.21 in the previous session.
Rodrigo Catril, senior currency strategist at NAB, said: “Obviously there was a lot of volatility after the announcement, but in terms of pricing behavior and the information released… it was not that significant. The controversy.”
“That’s very close to what the market is pricing in, particularly in terms of expectations — maybe a little over 100 — but a 100 basis point cut this time and another 100 basis point cut next year would end up with rates down 100 to 3%.” … not fundamentally different.
Federal Reserve policymakers on Wednesday expected the benchmark interest rate to fall by half a percentage point by the end of this year, a full percentage point next year and another half a percentage point by 2026, though they said the longer outlook was uncertain.
“We believe the dollar will weaken next year. This is a cyclical story, not a structural story,” Eric Robertson, global research head and chief strategist at Standard Chartered, said at a media roundtable in Singapore on Wednesday.
“We believe that the Fed’s interest rate cuts and the weakening of the global economy will weaken the US dollar, which is a good situation for the US dollar.”
Sterling fell 0.04% to $1.3208, its strongest since March 2022, having hit a high of $1.3298 in the previous session.
Data released on Wednesday showed UK inflation remained steady in August, but growth in the services sector, which is closely monitored by the Bank of England, has raised the prospect that the central bank will keep interest rates unchanged later today.
NAB’s Catril said: “As for the Bank of England, yesterday’s inflation data clearly shows that they still have concerns or problems with inflation, especially in the services sector.”
“So it seems a little bit difficult to expect rates to ease today because of what the Fed has done.”
Elsewhere, the Australian and New Zealand dollars found support from unexpected domestic data results.
A positive employment report showed that Australian employment remained higher than expected for the third consecutive month in August and the unemployment rate remained stable, reinforcing the view that the labor market remains tight.
This pushed the Australian dollar up 0.44% to $0.6794.
At the same time, data showed that New Zealand’s economy shrank by 0.2% in the second quarter, slightly better than the expected 0.4%, and the New Zealand dollar exchange rate rose 0.07% to 0.6212 US dollars.
