One more cut before a Fed pause

MUFG Research discusses the Fed's policy trajectory and expects a rate cut at the FOMC meeting later this month before a pause in December meeting.

"The US rate market is almost fully pricing in a 25 basis point rate cut later this month. More important for US dollar performance heading into year-end will be whether the Fed delivers another cut in December or sticks to plans for a rate pause. The WSJ has run an article on the topic in which they suggest that one issue facing the Fed is how to signal in their post-meeting statement later this month that the threshold for additional rate cuts would require stronger evidence of deterioration. The article highlights that one way the Fed has done this in the past is to highlight the accumulation of recent stimulus," MUFG notes.

"With the dollar index precariously positioned at key support from the 200-day moving, a less dovish Fed policy statement would bring some welcome relief for US dollar from recent selling pressures," MUFG adds.

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