I’m still trying to wrap my head around how rate cuts will affect USD pairs for the rest of the year.
I know today is a 25 bps or 50 bps discussion, and potentially more between now and January.
The the dollar react the same regardless of which outcome happens?
I’m confused with the stock markets being up, and not so doom and gloom with the decision happening today.
Is this because the rate cute is already baked into the minds of the big time traders? Or is it some longer term thing where rate cuts are actually good for the US economy (cheaper financing, debt, more lending, all that bank stuff), so any cut will make the markets react positive from a dollar perspective?
Anybody with more time in the market can help me understand this better?
Been watching USDJPY, GBPUSD and NZDUSD while the rate cut decision is happening. It’s moving in the opposite direction of what I expected. Pro USD basically. It’s it just a momentary pullback off the initial move? It’s only been an hour. I guess I’ll wait and report back in the morning.
Interesting to watch the S&P - like Eur/Usd it also spiked up and has since retraced - all time highs can be a little difficult to pierce - I’d figure if it does then the FX will follow.
The other major CBs are projected to also cut rates in to an easing cycle with the Fed/US.
…except for BOJ. They’re going to try to stay at 0.25+ as long as possible.
Hi @samewise, in my opinion the fed rate is actually won’t effect much to dollar strength.
The change of the rate has purpose to maintain a balance of the currency. Base on principle of economic money supply, when money distribution is considered higher compare to leverage of economic’s strength, the government will need to maintain the money supply in the market, by making a counterpart, such as increasing rate.
If economic is growing to fast, it will increase inflation rate. Inflation is the main killer to lower income people. It’s common, by looking at demography, a country will always has a biggest portion lower income people. It will lead instability to the country. So the growth of the economic have to follow the demography and income per capita.
So Fed Rate is considered as one of braking system.
When The Fed is lowering the rate, it will give a boost to economic. Lower interest will attract loan from economic’s real sector. So when the fed is lowering the rate, it will temporarily weaken the dollar. But next, we need to focus on economic sector. If the economic is getting better (caused by low interrest), the dollar will getting stronger.
Just be careful when the economic is getting worse after the rate cut, dollar will getting lower.
This is part of the story of fundamental. It is not that simple in real. It’s just for the sake of explanation only.
Hi @samewise, No body knows for sure. The only thing to do just wait for next week.
If economic indicators are inline with the rate cut, such as PMI, CPI, then USD will get stronger, boost by economic sector. Otherwise will get weaken.
I think maybe you mentioned Usd/Jpy but not really a good indicator of US Dollar since it’s oft times intermingled with risk sentiment which right now is volatile to say the least.
Remember Dollar up Yen down = buy US risk = buy Stocks = buy S&P
I mentioned S&P - & to watch today
Well it has pierced - and Eur/Usd is up - and Usd/Jpy likewise (i.e. Yen down)
Bit like a road map I suppose.
Edit: I’d have been shocked if the S&P didn’t go North - the only risk was geo political - not economic.
For guys getting their head around the notion of currency strength/weakness up ahead.
Think like an investor - they seek only one thing - return
If the chances that a currency will give better return on investment -i.e. interest rate then they will buy.
Thus the CB for that currency plays a role - are they likely to increase rates because historically they do so when inflation is on the upside - are economic indicators for that currency suggesting that Consumer prices (cpi) are on the up -leads to inflation ( thus rates increase)- maybe business has a more positive outlook (pmi) thus steady as she goes (rates unchanged)
Don’t normally do this but here is a possible trade post fomc yesterday.
If basing a trade on FA then techs take 2nd place - we are ‘trading the news’ but after the release.
1st thing is the knee jerk - it always retraces but is an indicator of algos direction - so wait until after that.
Then depending on thinking - and associated instruments then no TA stops - always a chance of Asian shake out - no TA stops - rely on the fundamentals because fundamentally they are reliable .
Hr1 - to the left of the up arrow (down candle) - price retracing after knee jerk - a buy.
Why there? - go back Aug 14 - TA - but no SL - possible shake out Asian up ahead.
Red line is TP - why there?
Just short of the knee jerk high
The rate cut decision is the foundation of the trade - though short term that it is.
