Breaking News: Huge Interest-Rate Cut Possibility Sends US Dollar Tumbling

The US Dollar (USD) is experiencing significant weakness as Fed rate futures for September show a surge in the possibility of a 50 basis points interest-rate cut to nearly 50%. Former Fed member Dudley is advocating for a bigger rate cut, supported by news articles suggesting that a major rate cut is still in play. The US Dollar Index is currently at 100.62 after facing rejection once again.

William Dudley highlighted concerns about the slowing US labor market, emphasizing the need to prioritize job security over inflation risks. This sentiment aligns with Fed Chairman Jerome Powell’s recent remarks at Jackson Hole, where he expressed a desire to avoid further weaknesses in the labor market.

Market focus remains on upcoming economic data releases, including US Import/Export prices and University of Michigan Consumer Sentiment data. A significant deviation in consumer sentiment numbers could strengthen the case for a 50-basis-point rate cut by the Fed.

Market Analysis: Key Data Releases and Future Outlook

  • Import and Export Price indexes for August are set to be released, with expectations of a decline in import prices and export prices.
  • University of Michigan preliminary findings for September, including consumer sentiment and inflation expectations, will be closely monitored.
  • Global equities are reacting to expectations of central bank actions, with Asian markets closing lower and European markets rising on ECB stimulus hopes.
  • CME Fedwatch Tool indicates a reduced probability of a 25-bps rate cut in September, while the likelihood of a 50-bps cut has increased following Dudley’s comments.
  • US 10-year benchmark rate hovers near a 15-month low, reflecting market uncertainty and dovish monetary policy expectations.

Technical Analysis: US Dollar Index Outlook

The US Dollar Index (DXY) faced resistance near 101.90 but retreated following speculation of a 50-basis-point rate cut. The index is now testing support at 100.62, with potential downside targets if the level is breached.

Key levels to watch:

  • Resistance at 101.90, with further upside potential towards 103.18 and beyond.
  • Support at 100.62, a crucial level that has held multiple times in recent weeks.

Technical indicators suggest a cautious outlook for the US Dollar, with a break below 100.62 opening the door to further downside towards 99.58 and 97.73.

US Dollar Index: Daily Chart

US Dollar Index: Daily Chart

Understanding market dynamics and key data releases is crucial for investors to make informed decisions. Keep an eye on consumer sentiment numbers, central bank actions, and technical levels to navigate the evolving financial landscape.

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