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US Dollar Surges As Federal Reserve Cuts Interest Rates

September 18, 2019 at 18:15 by Andrew Moran

Some USD bills and US cent coinsThe US dollar is surging midweek after the Federal Reserve cut interest rates at its September Federal Open Market Committee (FOMC). Additional easing is expected this year, leaving many to wonder if another round of quantitative easing (QE) is coming. Housing data further contributed to the dollar’s trading earlier in the session.

On Wednesday, the Fed announced a quarter-point cut to the fed funds rate to a target range of 1.75% to 2.00%.

The central bank also reduced the interest rate on excess reserves to 1.80%.

One of the bigger stories coming out of the policy meeting is that the dot plot suggests seven Fed officials project one more rate cut this year. The Fed has said that it will “act as appropriate to sustain” the national economy.

The Fed noted in a statement:

As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Only three dissented against the decision. St. Louis Fed Bank President James Bullard had preferred a 50-basis-point cut to a range of 1.50% to 1.75%. Kansas City Fed Bank President and Boston Fed Bank President Esther George and Eric Rosengren wanted to leave rates unchanged.

On the data front, the housing market performed better than expected.

According to the Mortgage Bankers Association (MBA), mortgage applications slipped 0.1% in the week ending September 13, which represents the ninth decline since the end of June. Also, refinance applications fell 4.3%, while applications to acquire a home climbed 6.4%.

The US Census Bureau reported that building permits surged 7.7% in August, up from the 6.9% gain in July. It also beat market expectations of a 3.1% contraction. Housing starts advanced 12.3% last month to a seasonally adjusted 1.364 million, the highest level since July 2007.

The US Dollar Index rose 0.14% to 98.40, from an opening of 98.21.

The USD/CAD currency pair climbed 0.34% to 1.3289, from an opening of 1.3247, at 18:11 GMT on Wednesday. The EUR/USD fell 0.26% to 1.1045, from an opening of 1.1073.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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