Dollar Index Declines to 14-Month Low Amid Fed Rate Cut and Risk Asset Rally

Team FS

20/Sep/2024

Dollar index held at 100.6, facing pressure from a rally in risk assets.

Fed delivered a 50 basis point rate cut, signaling confidence in inflation control.

Other central banks, including the BoE and PBoC, maintained steady policies.

On Friday, the dollar index held its recent decline to around 100.6, hovering near a 14-month low. This downward movement is attributed to a rally in risk assets, spurred by the Federal Reserve's significant rate cut, which has increased the likelihood of a soft landing for the US economy.

On Wednesday, the Fed implemented an outsized 50 basis point rate cut, marking its first reduction in four years. The central bank expressed confidence that inflation is moving sustainably toward its 2% target and aimed to prevent a slowdown in the labor market. However, Fed Chair Powell emphasized that the central bank is not in a rush to ease policy, noting that half-percentage point cuts are not the "new pace."

The dollar's decline has also been influenced by concerns that other major central banks may not follow the Fed's aggressive easing approach. The Bank of England maintained its policy steady this week, while the People’s Bank of China unexpectedly kept key lending rates unchanged. Additionally, the Bank of Japan held its policy rate steady, reinforcing its solid economic outlook.

This combination of factors has contributed to the dollar index's struggles as traders weigh the implications of central bank policies on the broader economic landscape. As risk assets rally, market participants continue to monitor developments that may further impact the dollar's trajectory.

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Dollar Index Declines to 14-Month Low Amid Fed Rate Cut and Risk Asset Rally

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