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Hype around imminent Fed rate cut cools down

Fed Chair Jerome Powell pours cold water on predictions of an interest rate cut next month.

Hype around imminent Fed rate cut cools down

The Dollar edged up from a three-month low as expectations for a half percentage point interest rate cut next month got dialled down. However, broader conviction the Federal Reserve will need to ease its monetary policy soon capped greenback gains.

US President Donald Trump has been pushing for aggressive rate cuts for some time now, and investors are still expecting at least one-quarter of a percentage point reduction this year.

Global interest rate cut predictions

Global interest rate cut predictions. Credit: Bloomberg

Interest rate futures traders are now pricing in a 33 per cent chance of a 50-basis-point cut at the Fed’s meeting in July, down from 38 per cent, while a cut of at least 25 basis points is priced at 100 per cent.

Despite the slight moderation in Fed cut hopes, benchmark 10-year US Treasury yields slipped below 2 per cent as a result of a protracted US-Chinese trade war.

The yen traded near its highest against the Dollar in more than five months and is likely to edge higher as geopolitical tensions between the US and Iran drove demand for safe-haven currencies.

Meanwhile, the Pound stuck near a session low of $1.2690 ahead of the Bank of England’s closely-watched quarterly inflation forecast which is due later today.

Trading is likely to be subdued as a meeting between Trump and Chinese President Xi Jinping at the G20 summit in Japan over the weekend will take the limelight. However, expectations for a breakthrough and an end to ongoing trade tensions between the world’s two largest economies are low.

The Dollar response to Fed Chair Powell's speech on Tuesday, 25 June.

The Dollar response to Fed Chair Powell’s speech on Tuesday, 25 June. Credit: Bloomberg.

Washington expressed hopes to relaunch trade talks with Beijing, but said it would not accept any conditions on tariffs. The two sides could agree not to impose new tariffs as a goodwill gesture to get negotiations going, US officials said.

The US has already imposed 25 per cent tariffs on $250 billion’s worth of Chinese goods, ranging from semi-conductors to furniture. And Trump has threatened to levy tariffs on another $325 billion’s worth of goods, covering nearly all the remaining Chinese imports to the US, including consumer products such as mobile phones, computers and clothing.

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