U.S. Dollar Steadies Ahead of the Federal Reserve Verdict

Markets predict that the Fed will reduce interest rates by 25-basis points. Simultaneously also raising sentiment on whether there would be further policy easing. A rate cut and further policy easing would insulate the U.S. economy from the slowing global growth and the implications of the ongoing trade conflicts.

Although the markets still expect a rate cut, likely, the Fed will not abandon the possibility for a future rate cut. At the same time, the Fed chairman, Jerome Powell, is not in a position to provide a definitive decision on whether there will be a future rate cut. As such, his promise of a rate cut is likely to remain as vague as it has been. These are views from Yukio Ishizuki, a senior currency strategist at Daiwa Securities.

Any unclear policy references would provide the greenback with an extra boost as it would temper excessive easing expectations.

About 78% of traders are expecting a 25 basis point cut. The remaining 22% vouching for the possibility of a much deeper 50 basis point easing.

The rate of federal funds is currently ranging from 2.25% to 2.50%

The Dollar Index

The dollar index measures the strength of the dollar against rival currencies. It was little changed at 98.036 after dropping from a two-month peak of 98.206 which it touched on Tuesday.

The dollar was a shade lower, trading at 108.53 yen while the Euro inched up to 1.1159, a 0.05% increase. The Bank of Japan on Tuesday steadied policy settings as many speculated on a move to further implement monetary easing soon.

Meanwhile, the pound has slipped this week as investors considered the possibility of Britain leaving the European Union without a deal. However, the currency managed to stabilize slightly.

The sterling climbed 0.1% to $1.2157, gaining from a 28-month dip of $1.2120.

However, troubles for the currency were far from over as Britain’s new Prime Minister, Boris Johnson, pledged to remove the country from the European Union. In July, the Sterling lost 4.3%, which indicates its ongoing troubles. The explicit agenda of leaving the EU, whether with transitional trading agreements or not is likely to have far-reaching impacts on the currency.

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