Optimistic sentiment towards the USD is reaching a three-week peak thanks to expectations that the Fed will maintain a tightening stance on interest rate policy.
According to currency option data, investors are betting that the Fed chair will not ease significantly and will maintain a cautious stance despite a possible small rate cut in September.
MAIN CONTENT
The USD is gaining strong bullish expectations thanks to the Fed's interest rate policy signals.
Fed Chair Powell may only cut rates by 0.25% but not in a too dovish manner.
Short-term risks of USD sell-off may occur if the market misinterprets Powell's statements.
How does the market react to the Fed's interest rate policy expectations?
The general sentiment in the market along with currency option data indicates an increase in positivity towards the USD, reaching its highest level in the past three weeks. Traders mainly believe that the Fed will maintain a cautious stance when adjusting interest rates, leading to increased demand for USD.
Jinshi Data reports this trend shows the Fed is likely to continue maintaining a "hawkish" stance on monetary policy, limiting the ability to cut rates too quickly. This helps the USD benefit from policy certainty and may strengthen its position in the short term.
Expert opinion on the Fed's potential interest rate adjustment in September?
Sonja Marten, a monetary policy research expert at Deutsche Bank, believes a 0.25% rate cut in September is possible. However, she thinks Powell will not pursue more aggressive measures and may not be under pressure from the White House to significantly cut rates.
Marten analyzes that the current economic and policy context requires caution, thus the Fed maintains a moderately tightening stance to balance economic stability and control inflation.
Risks and opportunities from the Fed's outlook: What should the market pay attention to?
Nick Rees, head of macro research at Monex Europe, warns that if the market misinterprets Powell's comments on the possibility of a rate cut in September, a short-term sell-off of USD may occur.
However, the overall picture still leans towards maintaining a tightening monetary policy stance, thus forecasting that the USD has the potential to continue rising before the week ends.
"While a small rate cut is feasible, the Fed will not take excessive stimulus actions and will maintain a cautious stance."
– Sonja Marten, Head of Monetary Policy Research at Deutsche Bank, 22/08/2023
Frequently Asked Questions
Why does the USD appreciate when the Fed maintains a tightening interest rate policy?
High or stable interest rate policies make the USD attractive to global investors due to more attractive yields compared to other currencies, increasing demand for USD.
How much will the Fed cut rates in the September meeting?
There is a possibility that the Fed will only reduce rates by 0.25%, maintaining a cautious attitude to avoid excessive changes to ensure economic stability.
How might the market react to Chair Powell's statements?
The market may react strongly, even selling off USD if it misinterprets the Fed's intentions regarding policy easing.
What factors influence the Fed's interest rate policy?
Inflation, economic growth, and political pressure are all important factors influencing the Fed's decisions.
What do experts think about the current monetary trend?
Experts often view the Fed's tightening policy trend as likely to continue strengthening the USD in the short term.
Source: https://tintucbitcoin.com/thi-truong-du-doan-powell-giu-chat-usd-tang/
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