The Fed’s biggest question about the size of the rate cut will be answered

Vaseline4 weeks ago

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The Fed’s biggest question about the size of the rate cut will be answered

Here’s what you need to know on Wednesday, September 18:

The US Federal Reserve (Fed) will conclude its two-day policy meeting and announce its interest rate decision on Wednesday. For the first time in a long time, markets are uncertain about what the Fed will do and will finally see whether policymakers will opt for a 25 or 50 basis point (bps) rate cut. The US central bank will also release its Summary of Economic Forecasts (SEP), also known as a dot-plot, and Chairman Jerome Powell will answer questions at a news conference.

PRICE USD this week

The table below shows the percentage change in the US dollar (USD) against the major listed currencies this week. The US dollar was weakest against the Australian dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.44%	-0.49%	0.71%	-0.06%	-1.00%	-0.83%	-0.35%
EURO	0.44%		-0.10%	1.10%	0.35%	-0.62%	-0.44%	0.04%
GBP	0.49%	0.10%		1.12%	0.44%	-0.53%	-0.33%	0.14%
JPY	-0.71%	-1.10%	-1.12%		-0.74%	-1.63%	-1.49%	-1.10%
CAD	0.06%	-0.35%	-0.44%	0.74%		-1.03%	-0.77%	-0.41%
AUD	1.00%	0.62%	0.53%	1.63%	1.03%		0.18%	0.65%
NZD	0.83%	0.44%	0.33%	1.49%	0.77%	-0.18%		0.48%
CHF	0.35%	-0.04%	-0.14%	1.10%	0.41%	-0.65%	-0.48%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose the US dollar in the left column and move along the horizontal line to the Japanese yen, the percentage change shown in the box will be USD (base)/JPY (quote).

Following a declining start to the week, the US dollar (USD) The index recovered to close in positive territory on Tuesday, supported by upbeat August retail sales data and cautious market sentiment. Early Wednesday, the index is holding slightly below 101.00. Meanwhile, U.S. stock index futures are trading marginally higher after Wall Street’s main indexes closed largely unchanged on Tuesday, with the benchmark 10-year U.S. Treasury yield hovering around 3.65 percent. According to the CME FedWatch tool, markets currently see a 61% probability that the Fed will cut the policy rate by 50 bps to a range of 4.75%-5%.

Britain’s Office for National Statistics reported on Wednesday morning that annual inflation, as measured by the change in the consumer price index (CPI), held steady at 2.2% in August, in line with market expectations. On a monthly basis, the CPI rose 0.3% after a 0.2% decline in July. Core CPI, which excludes volatile food and energy prices, rose 3.6 percent on an annual basis from 3.3 percent in July. GBP/USD it gained traction following these data and advanced towards 1.3200.

EUR/USD closed modestly lower on Tuesday but managed to stabilize above 1.1100. Eurostat will publish revisions to August’s harmonized index of consumer prices later in the session.

USD/JPY gathered bullish momentum and snapped a five-day losing streak on Tuesday. The pair remains on the back foot in the European morning on Wednesday and is trading below 142.00.

Gold it reversed course after setting a new high on Monday and lost 0.5% on Tuesday. XAU/USD remains relatively quiet early Wednesday and is hovering near $2,570.

Fed FAQ

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to ensure price stability and to promote full employment. Its main tool for achieving these objectives is the adjustment of interest rates. When prices rise too quickly and inflation is above the Fed’s 2 percent target, it raises interest rates, raising borrowing costs throughout the economy. This results in a stronger US dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can lower interest rates to encourage borrowing, which hurts the greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. Twelve Fed officials attend the FOMC—the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve rotating one-year terms. .

In extreme situations, the Federal Reserve can resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis of 2008. It involves the Fed printing more dollars and using them to buy higher quality bonds from financial institutions. QE usually weakens the US dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of bonds it holds at maturity to buy new bonds. It is usually positive for the value of the US dollar.

Vaseline4 weeks ago

0 3 minutes read

PRICE USD this week

Fed FAQ

Vaseline

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