Analyst: A larger Fed rate cut this week could push the dollar to a new low, while a 25-basis-point cut would significantly reduce currency volatility.
US Rate Market Divided on Fed's Interest Rate Cut Size
With just two days left before the Federal Reserve's rate announcement on September 17th, the US interest rate market remains divided on whether the Fed will cut rates by 25 basis points or 50 basis points. Data compiled by Bloomberg shows this is the most uncertainty among interest rate swap traders regarding a Fed meeting since 2007, with the exception of the emergency rate cut during the pandemic in March 2020.
Former New York Fed President and Bloomberg Opinion columnist William Dudley reiterated his support for a 50-basis-point rate cut on Monday. This shift from the Fed comes amidst heightened political tension in the US, with less than two months left before the presidential election. Three Democratic senators have urged the Fed to aggressively lower benchmark interest rates, including a 75-basis-point cut this week, to safeguard the US economy from potential damage.
Joe Tuckey, Head of FX Analysis at Argentex, a London-based provider of currency risk management and payment solutions, stated that a larger rate cut this week from the Fed "is likely to push the dollar to new lows," while a smaller 25-basis-point cut "could significantly reduce currency volatility."
