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Stage set for July rate cut, but by how much?

Jerome Powell struck a dovish tone when addressing Congress yesterday, paving the way for an interest rate cut.

Centtrip: Stage set for July rate cut, but by how much?

The Dollar is under pressure after Federal Reserve Chair Jerome Powell told Congress “broad” global weakness was clouding the US economic outlook amid uncertainty over the Trump administration’s trade conflict with China and other nations, setting the stage for an interest rate cut this month.

Powell vowed the Fed would “act as appropriate” to ensure the world’s biggest economy will be able to sustain a decade-long expansion. Overall, his comments about slowing growth against a backdrop of muted inflation and growing uncertainties could support further rate cuts this year.

The minutes from the Federal Open Market Committee’s (FOMC) previous meeting added to Powell’s generally dovish tone. They showed many policymakers thought more stimulus would be needed soon, reviving prospects of an aggressive rate cut.

The Euro rose by 0.2 per cent to $1.1274 in Asia, extending its gains after a 0.4 per cent increase the day before. The Dollar dipped 0.5 per cent to 107.96 against the Yen, extending its slide from a six-week high of 108.99 set on Wednesday before Powell’s testimony.

The Dollar Index, measuring the greenback against six major currencies, slipped by 0.2 per cent to 96.877, extending its losses into a second session after Powell’s first day in Congress, and turned negative on the week.

Money market futures have jumped to price in a 30 per cent chance that the Fed will cut rates by 50 basis points at its next policy meeting on 31 July – a scenario that had been priced out after strong US jobs data last Friday. A 25-basis-point cut is already fully factored in.

In contrast, the Canadian Dollar moved closer to last week’s eight-month high, as the Bank of Canada showed no sign that it would match potential interest rate cuts from the Fed, making clear it had no intention of easing monetary policy.

The Canadian Dollar stood at 1.3052 per US Dollar, not far from 1.3038 it touched a week ago.

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