All eyes are on the Federal Reserve’s upcoming decision this Wednesday, with the market buzzing not about whether they will cut rates, but by how much. Investors have been laser-focused on the Fed’s rate strategy ever since Jerome Powell’s Jackson Hole speech.
Image Credit: Shutterstock
All attention is focused on the Federal Reserve’s decision this Wednesday, as the market speculates not on if rates will be cut, but by how much. Since Jerome Powell’s Jackson Hole speech, investors have been intently monitoring the Fed’s approach to interest rates. The attention has shifted towards labor market data, with August’s underwhelming Non-Farm Payroll (NFP) report fueling speculation about a potential 50 basis points (bps) cut. Although this sentiment cooled following the release of high inflation data in the August CPI report, recent media speculation has reignited the debate.
The dollar has been testing new lows, briefly dipping below 101.00, while the EUR/USD pair touched 1.1100 before pulling back. The European Central Bank (ECB) is also watching its own economic indicators closely, contributing to a highly dynamic forex market this week. Investors are awaiting key economic data, but the Fed’s decision remains the central focus. Looking ahead, the dollar is expected to experience continued pressure depending on the Fed’s move and broader global economic factors. The euro and the pound are likely to remain stable, while the Japanese yen could strengthen given the Bank of Japan’s cautious stance on monetary policy.
The US$INR pair experienced a low-volatility week, with minimal fluctuations across most trading sessions. By the end of the week, the Indian rupee recovered to a two-week high of 83.85 against the dollar. The key driver for this pair has been the U.S. Federal Reserve’s interest rate outlook, which has seen varying expectations. Initially, the market was favoring a 25bps cut with a 70:30 probability. Mid-week, this shifted to 90:10 after U.S. CPI data showed only a slight 0.1% increase from the previous month. However, by week’s end, speculation of a larger 50bps cut surged after an article in the *Wall Street Journal* and comments from former New York Fed President Bill Dudley supported the idea of more aggressive rate cuts.
In India, Reserve Bank of India (RBI) Governor Shaktikanta Das has reaffirmed the country’s robust growth potential, predicting a 7.5% growth rate, slightly higher than the RBI’s forecast of 7.2% for 2024. While August inflation was slightly above expectations due to rising vegetable prices, there is no indication of immediate rate cuts. If the Fed opts for a larger rate cut, we could see downside pressure on the US$INR pair in the coming weeks.
You must be logged in to post a comment.
Stay ahead in the dynamic world of trade and commerce with India Business & Trade's weekly newsletter.