The US dollar fell after US Federal Reserve maintained its three rate cut forecast this year despite inflation taking longer than expected to get under control.
Already a subscriber?The Australian dollar rallied after the US Federal Reserve remained on track to cut interest rates three times this year even as inflation will take longer to return to target than previously thought.
“Chair Powell was more dovish than expected,” said Brian Martin, head of international economics at ANZ.The Fed now anticipates its preferred inflation gauge – the personal consumption expenditures price index – will finish this year at 2.4 per cent, and core PCE inflation at 2.6 per cent. In December, the forecast for both measures was 2.4 per cent.
Even so, the $A has shaved off more than 3 per cent this year because of interest rate differentials between US and Australian government bonds. Fed funds futures traders are now implying an 86 per cent chance that the Fed will start easing in June, up from 60 per cent. They remain priced for a move in July and ascribe a total of 85 basis points of cuts this year, slightly more than the Fed’s projections.“We now look for the FOMC to first ease policy at the June meeting, and looking for a total of 100 basis points of cuts in 2024,” said Oscar Munoz, chief US macro strategist at TD Securities.
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