The FX market has shown mixed reactions, high-beta, commodity-related G10 currencies like the Australian and New Zealand dollars, along with the Norwegian krone and the high-yielding British pound, have outperformed, reflecting investor optimism. The Fed's proactive 50 basis point rate cut has helped reduce the risk of a harder landing for the US and global economies. In contrast, the Bank of England left rates unchanged, leading to a divergence in policy between the Fed and the Bank of England, which boosts the pound's appeal due to higher yields in the UK.
The Fed faces pressure to keep cutting rates if the labour market weakens and inflation slows potentially harming the dollar. Additionally, geographical risks, China's slowing economy and the potential re-election of Donald Trump could support the Dollar.
In this video, Lee Hardman, Senior Currency Analyst at MUFG discusses the FX Market's reaction to the Fed's decision to initiate their easing cycle with a 50bps cut. He also shares his insights on the future trajectory of the USD following the commencement of the Fed's easing cycle.