Without a shadow of a doubt, the main attraction of today’s session is the Federal Reserve’s rate decision for the September meeting and albeit money markets almost fully pricing in a 25bps cut, a small minority bets that a jumbo 50bps cut could also be on the table.
Even though inflationary pressures remain above the central bank’s 2% target, broadcasting persistent stickiness, markets became increasingly convinced that the committee will temporarily marginalize the threat of reigniting price pressures and focus instead on the softness of the labour market and proceed with pre-emptive rate reductions.
Headline inflation in the US rose to 2.9% in August, whereas the core rate, that excludes volatile food and energy prices, hanged at 3.1%. Growth in the second quarter of 2025 rebounded to 3.3% after a brief slump in the prior quarter and the latest retail sales data showcased that the US consumer mercilessly continues to spend his/her hard-earned dollars and fuel the growth of the consumption driven US economy, amidst a high-interest rate environment.
The eye-catcher from economic data releases were the surprising low payroll growth figures over the past three months, BLS’s massive downward revision in job creation, a spike of last week’s jobless claims to levels last seen before in 2011 and the rise of the unemployment to the 4.3% level, all of which coalesced and signalled that cracks in the labour market started to emerge.
Thus, markets extrapolated that the Fed would decisively resume its easing campaign to safeguard further deterioration of the labour market and hence its growth function, at the expense of allowing price pressures to possibly rising. Money markets bet that beyond today’s 25bps cut the central bank would lower rates both in October and December, forecasting a cumulative total of 75bps of cuts by years end, moving the federal funds rate to 3.5%-3.75%.
Besides the decision however investors willseek out to see the rationale of why Fed officials decided to cut rates but also get a glimpse of what to expect next as the infamous dot plot graph of the committee will receive an update.
Technical Analysis
DXY Chart –The greenback slips to 2 and half month lows ahead of Fed’s decision
Resistance: 97.10 (R1), 98.40 (R2), 99.70 (R3)
Support: 96.00 (S1), 95.00 (S2), 94.00 (S3)
