U.S. Dollar’s Rollercoaster: Fed’s Rate Cut and Market Reaction
The U.S. dollar bounced back on Thursday after a significant drop following the Federal Reserve’s substantial interest rate cut. Although markets had largely anticipated the move, it exceeded economists’ expectations. The dollar’s rebound was driven by typical ‘buy the rumour, sell the fact’ trading behavior.
The U.S. dollar surged broadly on Thursday, recovering swiftly from an earlier steep decline that occurred in the immediate aftermath of the Federal Reserve’s significant interest rate cut, a move that had been largely anticipated by market participants.
On Wednesday, the U.S. central bank initiated its monetary easing cycle with an outsized half-percentage-point reduction. Chair Jerome Powell stated that the decision aimed to demonstrate policymakers’ commitment to maintaining a low unemployment rate, now that inflation pressures have softened. Despite the move being forecasted in media reports, it surpassed the expectations of economists surveyed by Reuters who had predicted a smaller 25-basis-point cut.
Market reactions followed a ‘buy the rumour, sell the fact’ pattern, keeping the dollar strong in early Asian trading. The greenback rebounded from a more than one-year low against a basket of currencies and was last marginally higher at 101.03. Against the yen, it gained 0.58% to 143.12 while the euro fell 0.04% to $1.1113 from a three-week high reached in the previous session.
