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Dollar blasts higher on Fed’s “insurance” rate cut

Dollar blasts higher on Fed’s “insurance” rate cut

History was made today after the Federal Reserve cut interest rates for the first time since the 2008 financial crisis.

Unfavourable global conditions, persistent US-China trade tensions and muted inflation pressures have forced the Fed to cut interest rates by 25 basis points, taking the federal fund's target range to 2-2.25%. The central bank also decided to conclude its balance sheet reduction in August - two months earlier than previously announced.

Although the monetary easing was justified by “uncertainties” stemming from weakness in the global economy, the committee expressed optimism over the US economy by calling growth “moderate” and the labour market “strong”. Overall, the Fed statement was not as dovish as markets priced for and this sentiment is being reflected in the Dollar Index which is blasting above 98.50 as of writing.

While the Fed also left the door open to future cuts, saying it will “act as appropriate to sustain the expansion”, this will be contingent on incoming data and US-China trade developments.

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