U.S. Dollar Rate Talking Points
The U.S. dollar[1] selloff following the Federal Reserve meeting was short-lived, with major exchange rates like EUR/USD[2] slipping to a fresh weekly low on Friday, but developments coming out of the U.S. economy may continue to produce headwinds for the greenback as ‘data arriving since September suggest that growth is slowing somewhat more than expected.’
Fundamental Forecast for U.S. Dollar: Bullish
The Federal Open Market Committee (FOMC) interest rate decision has shaken up the near-term outlook for the U.S. dollar as the central bank lowers its economic projection and shows a greater willingness to keep the benchmark interest rate at its current threshold of 2.25% to 2.50% throughout 2019.
It remains to be seen if Fed officials will continue to revise the longer-run interest rate forecast as Chairman Jerome Powell warns that ‘it may be some time before the outlook for jobs and inflation calls clearly fora change in policy,’ but updates to the U.S. Gross Domestic Product (GDP) report may push the central bank to adopt a more accommodative stance as the final reading is anticipated to show the growth rate expanding 2.4% versus an initial projection of 2.6%.
A marked downward revision in the 4Q GDP print may spur a growing argument at the FOMC[3] to abandon the hiking-cycle as the Fed’s Summary of Economic Projections (SEP) ‘point to a modest slowdown,’ and evidence of a less robust economy may drag on the U.S. dollar as it spurs speculation for lower interest rates.
In fact, Fed Fund Futures now show market participants pricing a 50% probability for a rate-cut in December,
