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Hello everyone, today XM Forex will bring you "[XM Forex Platform]: The Federal Reserve cut interest rates as scheduled, and the U.S. dollar and U.S. bond yields fell sharply." Hope this helps you! The original content is as follows:
In Asian trading on Thursday, the U.S. dollar index fell slightly. After the Federal Reserve announced an interest rate cut, the U.S. dollar fell sharply against major currencies. The Federal Reserve lowered the federal funds rate target range by 25 basis points to 3.50%-3.75%, in line with market expectations, but three policy members disagreed on this decision. The key point is that the Fed hinted in its policy statement that it may pause cutting interest rates at its next meeting in January to assess more economic data.
U.S. dollar: As of press time, the U.S. dollar index is hovering around 98.60. What puts further pressure on the U.S. dollar is the statement of Federal Reserve Chairman Powell. He made it clear at the press conference that policymakers' "baseline scenario" does not include future interest rate hikes, saying the next move is "unlikely to be a rate hike." Notably, the interest rate futures market is still pricing in two rate cuts in 2026, although the median Fed's latest "dot plot" forecast shows policymakers expect just one rate cut (25 basis points) in 2026, consistent with the September forecast. The market currently believes that the probability of the Fed keeping interest rates unchanged in January next year is 78%. Analysts noted that concerns about slowing economic growth and a cooling labor market are offsetting the Federal Reserve's cautious approach to inflation, which together are contributing to the dollar's weakness.
No one regards raising interest rates as a basic assumption scenario. The market believes that interest rates should either remain unchanged or cut. Inflation is still "increasing" due to the impact of tariffs, and inflation remains at a relatively high level. If tariff factors are put aside, the inflation rate is low at around 2%. Data showed the unemployment rate edged up and job growth slowed significantly. Artificial intelligence may be one reason for the employment weakness, but it is not the main reason. It has been moving in the direction of neutral interest rates and is now at the high end of the neutral interest rate range. To ease money market pressures, Treasury purchases are likely to remain at a high level in the www.xmtdhf.cning months. The scale of bond purchases is expected to decline thereafter. The housing market faces significant challenges, with a long history of underconstruction of housing, and a 25 basis point cut in the federal funds rate may not have much of an impact on housing affordability. The nomination process for the Fed Chairman will not hinder current tasks, and there are no new plans for the Fed Chairman after his term expires. would not www.xmtdhf.cnment on the Supreme Court case involving Fed Governor Cook. The Federal Reserve is in a wait-and-see mode as it determines future monetary policy decisions.
On the 10th local time, Ukrainian President Zelensky announced through social media that the Ukrainian team held the first meeting with U.S. Treasury Secretary Bessant, presidential adviser Kushner and Larry Fink. This meeting was the opening meeting of the Ukrainian Reconstruction and Economic Recovery Document Working Group. The two sides had in-depth exchanges on key reconstruction issues, implementation mechanisms and future visions, and clarified the correct path to promote the implementation of many achievements in Ukraine. Uzbekistan has formulated a 20-point core position on the basic document to end the conflict, emphasizing that overall security is the prerequisite for economic security and business environment protection. The talks also finalized the follow-up contact mechanism, and Zelensky said that Ukraine will make every effort to advance the work to achieve substantive results.
The Fed dot plot shows that among 19 officials, 7 officials believe that interest rates should not be cut in 2026, and 4 officials believe that there should be The cumulative interest rate cut has been 25 basis points, 4 officials believe that the cumulative interest rate reduction should be 50 basis points, 2 officials believe that the cumulative interest rate reduction should be 75 basis points, 1 official believes that the cumulative interest rate reduction should be 100 basis points, and 1 official believes that the cumulative interest rate reduction should be 150 basis points.
The Bank of Canada kept the benchmark interest rate unchanged at 2.25% as scheduled on Wednesday. Governor McCallum said that although the latest data showed that the economy was more resilient than previously thought, interest rates were still at an "appropriate level." The policy statement reiterated that if its October economic forecast is basically true, the current interest rate is roughly at an appropriate position, and it is appropriate to keep interest rates at the "lower edge of the neutral range." The statement also emphasized that it is "ready to respond when the outlook changes." McCallum noted that revisions to GDP data for 2022 to 2024 may explain some of the resilience, suggesting that "before the trade conflict, the Canadian economy was healthier than we originally thought." This series of neutral www.xmtdhf.cnmunications shows that the Bank of Canada is inclined to maintain the status quo without major changes in inflation or growth.
European Central Bank Governing Council member Cazacs said in his speech that although the euro zone inflation rate is close to the 2% target, "inflation momentum has picked up recently." He pointed out: "Core inflation, especially stubborn service industry prices, requires continuous monitoring." Kazaks believes that the current monetary policy is still in a good position - inflation is close to 2% and interest rates are roughly neutral. He also said that fiscal policy brings headwinds, and higher budget deficits and government debt may www.xmtdhf.cnplicate monetary policy in the next few years; the short-term macroeconomic outlook is slightly better than expected, mainly due to the resilient service industry and strong labor market; the medium-term outlook is still shrouded by geopolitical, institutional and policy uncertainties.
CICC Research reported that the Federal Reserve cut interest rates by 25 basis points at the December meeting as expected, but the number of officials opposed to interest rate cuts has increased to two, indicating that the threshold for further interest rate cuts is rising. At the same time, Powell's tone was not hawkish, and the Federal Reserve's announcement that it would initiate short-term Treasury bill (T-bills) purchase operations helped ease market concerns. The reversal of expectations for a "hawkish interest rate cut" that had been fully factored in previously has intensified market volatility. Looking forward, given that the economy and employment are still facing downward pressure, we expect the Federal Reserve may continue to cut interest rates in 2026; however, considering that inflation remains sticky, the pace of interest rate cuts will tend to slow down. There may be no action in January, and the next interest rate cut may be in March.
Goldman Sachs analyst Kay Haigh said that the Fed has reached the end of "precautionary interest rate cuts". She believes: "The onus is then on to labor market data having to weaken further to justify additional near-term easing. The 'hard dissent' from the voting www.xmtdhf.cnmittee and the emergence of 'soft dissent' in the 'dot plot' highlight the Fed's hawkish camp, and the return of the 'extent and timing' language on future policy decisions in the statement is likely to appease them. Although this This leaves the possibility of future interest rate cuts, but the weakness in the labor market must reach a higher threshold."
Analyst Mark Mitchell said that at the last monetary policy meeting in 2025, the Bank of Canada kept the benchmark interest rate unchanged at 2.25% as scheduled. Although recent economic data have been stronger than expected, the tone of Governor McCollum's speech was not as "hawkish" as some market participants expected. Instead, he emphasized that the policy outlook is still subject to multiple uncertainties. McCallum made it clear that the latest data "does not change the central bank's core forecast of moderate GDP growth and inflation near the 2% target in 2026." He specifically pointed out that the upcoming review of the United States-Mexico-Canada Agreement is exacerbating the policy and trade uncertainties faced by www.xmtdhf.cnpanies and may affect investment and hiring decisions. Overall, the Bank of Canada chose to maintain a cautious balance at the end of the year: it recognized the resilience of the economy but was not eager to turn to tightening, and retained policy flexibility to respond to fluctuations in geopolitics, trade policy and external demand.
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