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US Dollar Rallies on Federal Reserve’s Cuts to Interest Rates

October 30, 2019 at 18:32 by Andrew Moran

The US dollar is rallying on Wednesday afternoon after the Federal Reserve cut interest rates for the third time this year. But the big news coming out of the Federal Open Market Committee (FOMC) policy meeting was the central bank indicating that it is hitting the pause button on rate cuts. The third-quarter gross domestic product (GDP) was also in the spotlight leading up to the October meeting.

The Fed slashed rates by 25 basis points to a target rate of 1.50% to 1.75%, which is the third rate cut in 2019. This matches last month’s dot-plot that charted three rate cuts this year. The Fed did signal that it will pause on rate cuts to assess the US economy before acting again.

The central bank said that it agreed to a rate cut to protect the world’s largest economy from the crippling trade war with China that has impacted both domestic and global economic growth. But the Fed does believe that the US economy is “rising at a moderate rate.” It also said in its statement that “job gains have been solid” and “the unemployment rate has remained low.”

The vote was eight to two, with Boston Fed Bank President Eric Rosengren and Kansas City Fed Bank President Esther George the lone dissenters. They argued that the economy is strong enough to expand without any additional rate reductions.

Soon after the announcement was made, equities barely budged. The Dow Jones fell 17 points, the S&P 500 slipped four points, and the Nasdaq dropped 19 points. The lackluster performance of financial markets was likely due to the Fed signaling an end to its mid-cycle adjustment, which suggests a decline in the added stimulus.

Earlier on Wednesday, the Bureau of Economic Analysis (BEA) reported that Q3 GDP came in at 1.9%, a 0.1% dip from the previous quarter’s 2% expansion. The market had penciled in a 1.6% jump, suggesting that the slowdown may not be as fierce as analysts had forecast.

The US Dollar Index climbed 0.11% to 97.80, from an opening of 97.67. The index, which measures the greenback against a basket of currencies, was trading relatively sideways until the Fed news broke.

The USD/CAD currency pair surged 0.82% to 1.3194, from an opening of 1.3088, at 18:25 GMT on Wednesday. The EUR/USD rose 0.02% to 1.1114, from an opening of 1.1111.

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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