The dollar gained on Wednesday (Oct 29) after the US central bank lowered rates as expected, but Federal Reserve Chair Jerome Powell pushed back against market pricing for another rate cut at the December meeting.
Wednesday’s rate cut drew dissents from two policymakers, with Governor Stephen Miran again calling for a deeper reduction in borrowing costs and Kansas City Fed President Jeffrey Schmid favouring no cut at all, given ongoing inflation.
“The dissent from Schmid is hawkish, that captures the sentiment from a few Fed officials, so there could be some pressure on Powell to hold back market pricing for a December cut,” said Adam Button, chief currency analyst at investingLive in Toronto.
Powell said that US central bank officials are struggling to reach a consensus about what lies ahead for monetary policy and that financial markets should not assume another interest rate cut will happen at the end of the year.
dds of a cut at the Fed’s December meeting are now at 62 per cent, down from around 85 per cent earlier on Wednesday.
The US central bank further announced that it will restart limited purchases of Treasury securities after money markets showed signs that liquidity was becoming scarce, a condition the US central bank has pledged to avoid.
Steven Blitz, chief US economist at consultancy TS Lombard, said policymakers are unlikely to see enough change in data before the next Fed meeting to warrant another move.
“I doubt very much between now and mid-December when the next meeting is, there’s going to be such a dramatic shift in the data that Powell is going to come in and cut,” he told CNA’s Asia First.
“So I think he’s holding. He’s not going to actually say he is holding because there’s always that possibility (of a rate cut).”
Blitz added that while the Fed remains divided, with little new information expected in the coming weeks, officials are likely to maintain their current stance and reassess the outlook in January.
TRUMP DUE TO MEET XI ON THURSDAY
Traders are also focused on trade talks between the US and China, with US President Donald Trump due to meet China’s leader Xi Jinping on Thursday.
Both the European Central Bank and the Bank of Japan are expected to hold rates steady on Thursday.
The Japanese yen weakened 0.56 per cent against the greenback to 152.86 per dollar. It had strengthened earlier after US Treasury Secretary Scott Bessent urged Japan’s government to give the central bank scope to raise interest rates, escalating his warning to Tokyo against keeping the yen too weak through prolonged low borrowing costs.
Bessent, who was in Japan with Trump for talks with the newly-formed government of Prime Minister Sanae Takaichi, has repeatedly criticised the BOJ for its slow pace of rate hikes.