Federal Day
The US dollar index witnessed a significant decline to reach the level of 96.70, the lowest level recorded in the past two and a half months, losing about 1% of its value during this week alone. The decline comes amid widespread expectations that the Federal Reserve will cut interest rates at its meeting today, in a move aimed at supporting the viability of the world's largest economy.
The performance of the dollar and global markets
The decline of the dollar index
The dollar index (DXY) reached the lowest level since early July, registering around 96.70, due to persistent selling pressures.
The dollar fell against the euro to 1.1797, the lowest since July 3, and against the pound sterling fell to 1.3627, the lowest level since July 8.
Decline against other currencies: the dollar reached a ten-month low against the Australian dollar at 0.6677, reflecting the weakness of the US currency in general.
Performance of other assets
Gold: the precious metal hit new record highs, surpassing 3,700 dollars per ounce, supported by a weak dollar and expectations of an interest rate cut.
Oil: prices stabilized after yesterday's gains, with the market awaiting the Federal Reserve's decision.
Global stocks: easing expectations pushed stocks to unprecedented levels at the expense of US Treasury bonds and the dollar.
Factors of pressure on the dollar
- Disappointing economic data
Labor market: US employment data showed a weak performance, recording Limited Job Addition and a rise in the unemployment rate, which reinforced expectations of an interest rate cut.
Inflation: although inflation remains above the Fed's 2% target, the latest inflation data showed few surprises, which supported the easing expectations.
- The expected federal policy
Interest rate cut: the Fed is widely expected to cut interest rates by 25 basis points today, with a total of 67 basis points of easing expected by the end of the year, and they also expect further monetary easing of almost 150 basis points until the end of next year.
Future forecast: Deutsche Bank analysts expect the Fed to cut interest by 25 basis points at each of the three remaining meetings this year, which could reduce borrowing rates to 3.50% -3.75% .
- Political and judicial pressures
US President Donald Trump has repeatedly called for an even greater reduction in interest rates, calling in a social media post for a 50 basis point cut, and these calls increase political pressure on the Fed, raising concerns about its independence.
Market forecasts and possible scenarios
The Fed's expected trends
Monetary policy statement: investors will pay close attention to the monetary policy statement and the press conference of Fed Chairman Jerome Powell, looking for signals about future actions of interest rates.
Dot Plot: the focus will be on the quarterly forecast known as the dot plot, which will reveal the members expectations for the path of interest, inflation and growth.
Possible effects on markets
Dollar weakness: if the Fed confirms an easing policy, the dollar may continue to decline, which may support gold and risky assets, and this is what we expect by a large percentage.
Reducing expectations: if Powell focuses on inflation risks or uncertainty, the markets may reduce their expectations for an interest rate cut, which may support the dollar, and this is a slightly remote probability.
In the end, the Fed's decision today will determine the course of financial markets in the coming months, especially as the economic and political challenges facing the US economy continue.
