Fed Opts For Larger Cut

Markets have had an interesting 12 hours on the back of the September FOMC meeting last night. The Fed slashed rates by a larger .5%, along with dovish revisions to the dot plot forecasts. Powell and co no project at least a further .5% of easing this year followed by 1% of easing next year. The initial market reaction saw USD swing sharply lower before Powell’s comments at the post-meeting presser curbed selling. The Fed chair was clearly trying to mitigate the bearish Dollar impact of a larger .5% cut, telling markets not to expect further .5% cuts saying that there was no clear cut path.

Powell Confident on Jobs

On the labour market, Powell said that the bank deems it to be in good health with this policy adjustment designed to offer further support. Interestingly, however, Powell noted that the Fed might have cut in July had the jobs data been received before that meeting, a nod to those accusing the central bank of acting too late with rate cuts.

Data Dependent

The decision to go big at the start of this easing cycle sends a strong message to markets that the Fed is willing to take action. Additionally, the dovish revision to the dot plot forecasts means that traders now have a much clearer view of the bank’s intentions. The broad takeaway is that if jobs and inflation data continue to weaken, a faster pace of easing will be seen. If these data points stabilise, easing will move at a slower pace. Near-term, USD looks likely to remain skewed lower though as traders digest the details of the meeting.

Technical Views

DXY

Following some volatility around the meeting yesterday, DXY is now trading back below the 100.93 level. With momentum studies turning lower, focus is on a fresh push to the downside with 99.67 the next support to watch. Outlook stays bearish while below 102.46.