Fed’s 50bp has the dollar down, but not necessarily out

The FOMC’s decision to kick off its easing cycle with a bang has boosted risk sentiment – with the S&P 500 surging to a new all-time high – and put the US dollar on the backfoot again. However, the US economy is still in solid shape and Chair Powell outlined a fairly optimistic view of the outlook in his remarks on Wednesday. We expect the FOMC to shift down a gear to 25bp cuts over its coming meetings and, overall, deliver somewhat fewer rate cuts than money markets currently discount as the US economy manages a soft landing. As such, we continue to expect the greenback to stabilise over the coming weeks as US interest rate expectations rebound a bit (and the uncertainty around the upcoming US election starts to loom larger).