Market expects a bigger rate cut from the Fed this week

According to a report by Jin10, bond traders are now betting on a 50 basis point rate cut from the Federal Reserve at this week's meeting, instead of a 25 basis point cut. Swap contracts linked to the Fed's interest rate decision show a probability of over 50% for a 50 basis point cut, a stark contrast to last week when traders almost entirely ruled out such a move. This has pushed the 2-year US Treasury yield to its lowest level in two years and dragged the US dollar index to its lowest level since January.

Philip Marey, senior US strategist at Rabobank, wrote that he expects a standard 25 basis point rate cut. “Powell's lack of guidance may suggest that the FOMC hasn't reached a consensus yet. More importantly, Tuesday's retail sales could still alter market expectations.”