Markets appeared to be close to certain that the predicted mega Federal Reserve rate cut is now unlikely to transpire as trading got underway on Wednesday morning.
It marks a significant turnaround for the markets, which up until last week were predicting that a 50 basis point cut – or a slashing of 0.5% off the main rate, which currently sits at 2.5% – was pretty much certain.
However, there is still a strong possibility that the Federal Reserve will cut rates by 25 basis points when it meets at the end of July.
The key event for traders today will be the testimony of Jerome Powell to the US Congress, which is happening today and tomorrow. In his testimony, he could choose to drop hints as to where the bank will go next. Markets have now priced in the likelihood of a 25 basis point cut, and the testimony today is expected to confirm the chances of this happening.
The dollar rose in the forex markets on Wednesday morning as a result of the developments. The dollar index, which monitors how the currency is performing compared to several major currencies from around the world, was resting at 97.516. This was within touching distance of 97.588, which was a high point it saw the day before. That point was the best performance for the index since almost a month ago.
Compared to the Japanese yen, the greenback went up to 108.990. This was the best position for that particular currency pair since the very end of May.
In other currencies, the Australian dollar was down in its pair with the US dollar. It saw a move from $0.6960 to $0.6921.
It also suffered in its pair with its near neighbour too. The AUD/NZD pair declined in value by 40 pips. This came as a result of a consumer demand data release, which revealed that the sentiment among buyers in the region was at a 24-month low point.
However, the New Zealand dollar was not in a position to gloat. In a sign of the US dollar’s overarching dominance, the New Zealand dollar also slipped – and went from $0.6630 to $0.6601 in this pair.
The British pound continued to suffer in the face of political and economic woes. It appears to be trapped in a half-year low range, with little prospect of rising in value any time soon due to ongoing concerns about Brexit.
Over the course of the night, the pound went down against the dollar from 1.2510 to 1.2440. This currency is also likely to be affected by the release of a financial stability report from the Bank of England, which may give some clues as to what the Bank will do next.
One of the main losers in the currency markets over the course of Tuesday, however, was the single European currency. It dropped below the $1.12 mark at one stage in its pair against the US dollar and reached $1.1194. However, it later stabilised and was last recorded holding firm at $1.1208.