What exactly is the market pricing in at the moment?
A Fed rate cut in April is almost fully priced in as of today with a second cut seen in July and with a third cut slowly edging its way towards the end of this year potentially.
Just how much of a hit to the US economy that it will cause the Fed to cut rates by three times from now? Is the market going too far in pricing in coronavirus fears at this point?
The issue with a possible more widespread outbreak in the US is that the Fed cannot win the battle against the virus no matter how much policy measures are introduced.
0% interest rates mean nothing if the outbreak becomes a major epidemic and it continues to grip the economy in ways not yet quite imaginable at the moment.
I reckon the dollar has some scope for added weakness if the virus becomes a potentially serious epidemic across the US but given how aggressive the market is pricing in Fed rate cuts now, is that situation really priced in at the moment?
I'm not too sure but I reckon it could be something in between and even then it would depend on coronavirus developments and how US authorities are able to respond to contain any major outbreak across the many states.
What do you think will happen to the dollar if the US sees a bigger outbreak? Is the market being too aggressive in pricing in Fed rate cuts at the moment? If not the dollar and Treasuries, where are investors going to park their money?
