The DXY Index fell 0.7% to 104.37 following the Fed’s second consecutive rate cut overnight, partially reversing the 1.6% rally that occurred after Trump’s victory in the U.S. election the previous day. The Federal Reserve lowered the Fed Funds Rate by the standard 25 bps to a range of 4.50-4.75%, citing similar reasons as in its larger 50 bps cut in September. Fed Chair Jerome Powell stated that the rate is moving towards a neutral stance, provided incoming data continues to indicate that inflation is on a steady path toward the 2% target without a further softening in the labour market. The US Treasury 10Y yield eased by 6.4 bps, dipping slightly below 4.20%, while futures markets hold steady in their expectation of a third 25 bps cut in December. Next week, the Fed is likely to focus on the monthly reading of CPI inflation, which expected to remain unchanged at 0.2% MoM for the fourth consecutive month. Powell noted that the Fed would evaluate the effects of the upcoming administration’s policies after their details are announced, which will be after Trump’s inauguration on January 20, 2025.
GBP/USD rebounded by 0.8% to 1.2984 following a less dovish Bank of England meeting on Thursday, partially reversing the previous session’s 1.25% decline to 1.2878 driven by Trump’s re-election. The Monetary Policy Committee (MPC) voted 8-1 to reduce the bank rate by 25 bps to 4.75% and signalled a gradual approach to easing policy restrictions to assess the impact of the Chancellor’s Budget announced on October 31. The BOE projected that the budget would boost GDP growth by 0.75% and inflation by 0.5% over the coming year. As a result, it adjusted its economic growth forecast to 1.5% for 2025, up from 1% for 2024. Additionally, the BOE raised its inflation forecast, now expecting inflation to reach 2.75% in 2025 (up from 2.25%) and 2.25% in 2026 (up from 1.50%). The BOE anticipated that inflation, which had fallen to 1.7% YoY in October, would rise and remain above the 2% target until 2027. These forecasts are based on an assumption that rates will decline to 3.7% by the 4Q25, creating expectations for gradual quarterly rate cuts by the BOE throughout 2025.
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