In This Article:
The Federal Reserve cut interest rates by 25 basis points Wednesday afternoon but signaled a slower path for monetary policy than investors expected, forecasting just two rate cuts for 2025. The US dollar (DX.Y-NB) strengthened as broader markets sold off on the news.
Macquarie Global FX & Interest Rates strategist Thierry Wizman joined Morning Brief to analyze the dollar's trajectory.
Wizman noted the Fed's outlook is "more hawkish" as it considers potential inflationary pressures ahead of the upcoming Trump administration. While the Fed's stance boosted the dollar, he explained that another factor is the dovish positioning of other central banks: the ECB is "promising" continued rate cuts, the Bank of Canada is cutting rates aggressively, the BOJ is delaying rate hikes, and the Bank of England is maintaining its current rate.
"As the Fed is getting more hawkish, all the other major central banks are getting more dovish, and that is the flip side of the story around the dollar strength," Wizman states, suggesting other central banks' dovish stance reflects the potentially disinflationary impact of proposed Trump tariffs on their economies.
Related Videos
Regarding market implications, Wizman indicated a strong dollar could push yields lower "because a strong dollar does promote some disinflation in the US." He also suggested investors could rotate from US to foreign stocks "simply on the premise that the Fed is getting more hawkish and the other central banks are getting more dovish," potentially supporting overseas equity markets.
To watch more expert insights and analysis on the latest market action, check out more Morning Brief here.
This post was written by Angel Smith