Bets that the Federal Reserve will lower its benchmark overnight interest rate at its March meeting by a quarter of a percentage point soared last week after the Fed left its policy rate unchanged
The U.S. dollar dropped against the euro on Monday, extending last week’s decline, as the U.S. currency remains under pressure from the Federal Reserve’s signalling last week the possibility of interest rate cuts next year.
The dollar was higher against the yen as the BOJ kicked off a two-day meeting that could be crucial in determining the timing of the end of the central bank’s ultra-loose interest rate policy.
Bets that the Federal Reserve will lower its benchmark overnight interest rate at its March meeting by a quarter of a percentage point soared last week after the Fed left its policy rate unchanged in the 5.25 per cent-5.50 per cent range and officials forecast three-quarters of a percentage point in cuts in 2024.
The Fed, having failed to push back on the aggressive dovish repricing we have seen over the last six weeks or so, has given license for financial conditions to loosen further, according to Michael Brown, market analyst at Trader X in London.
Meantime, ECB policymakers do not expect to change their message on the need for high interest rates before their March meeting, making any rate cut before June difficult, people familiar with the matter told Reuters.
Time will tell if the European Central Bank is forced to cut interest rates sooner and more aggressively than it hopes to, but clearly markets are content betting against central banks’ “higher for longer” mantra, Matthew Weller, global head of research at FOREX.com and City Index, stated in a note.
The Fed is not pre-committing to cutting interest rates soon and quickly, and the jump in market expectations that it will do so is at odds with how the U.S. central bank functions, Chicago Fed President Austan Goolsbee said on Monday.
