The US Dollar (USD) is mixed and still trading below its 200-DMA. 10-year Treasury yields have been testing the high end of their 3.95%-4.20% range since September, and US stock futures are on the decline, according to BBH FX analysts.
The Fed is expected to cut by 25 basis points, and markets are looking forward to September and a split in votes
“The FOMC is expected to trim the target range for the federal funds rate by 25 basis points to 3.50-3.75% (90% priced). The press release is likely to reiterate that inflation “remains moderately high,” and that “downside risks to employment have risen in recent months.”
“The Fed could announce plans to begin purchasing short-term Treasury bills given the recent upward pressure on funding rates. This would be a liquidity management measure, not a change in the fundamental stance of monetary policy. Instead, the FOMC vote split, the Summary of Economic Outlook (SEP) and Fed Chairman Jay Powell’s press conference will guide the hawkish and dovish policy tilt.”
“Markets are positioned for a hard cut as US two-year swap rates (3.20%) are slightly higher than the FOMC’s 2027/2028 funds rate forecast (3.13%). This means the barrier for a cautious surprise is low.”
