Will the Fed reverse course on rates?


Investor expectations of a Fed rate cut next week now stand at 18.3%, according to Investing.com's Fed Rate Monitor Tool.

With rate cut expectations running high following Friday's disappointing NFP report, the focus for the U.S. dollar this week is firmly on the latest inflation and retail sales figures.

The Fed faces pressure to cut a key short-term rate as there are signs of slowing economic growth.

The Dollar extended earlier gains during noon trading Wednesday even after official inflation figures surprised on the downside for the month of May, although the miss was miniscule and might itself have disappointed those betting the Federal Reserve (Fed) will cut USA interest rates this year.

Core inflation, which is seen as a truer measure of domestically generated inflation pressures because it excludes changes in commoditised food and energy prices, surprised on the downside in May.

The Fed raised rates four times a year ago, with the last hike in December putting the federal funds rate in the 2 ¼ to 2 ½% range.

USA central bank policymakers are scheduled to meet on June 18-19 against the backdrop of rising trade tensions, slowing growth and a sharp step-down in hiring in May that has led financial markets to price in at least two rate cuts by the end of 2019.

The closely-watched core inflation that strips out food and energy also advanced a scant 0.1 percent last month.

Previous data has shown that the rate cut will be appropriate.

The yuan had risen on Tuesday after China's central bank said it would sell yuan-denominated bills in Hong Kong in late June, in a move that some market analysts believed was aimed at stemming a sharp decline in the yuan.

Expectations in the Fed Funds futures for a rate cut by the July 31 FOMC meeting were 80.3% as of this writing and for the December 19 meeting the last of the year, they are 98% for at least one decrease and the 83.3% for two or more. Analysts fear that it will send signals that the USA economy is not as strong.

Above: CME Group estimate of expectations for 2019 Fed Funds range. The Fed will update its economic forecasts as well as its famous dot-plot chart at its June meeting, with the big question being on whether or not policymakers will foresee a rate cut in their projections. This was much lower than the 180K that investors were expecting. The S&P 500 index ended up by 2.1 %.

Jerome Powell, whom Mr Trump appointed as Fed chairman a year ago, has refused to respond to the president's criticism and repeatedly stressed that policy makers will ignore political pressure as they set policy to support maximum employment and stable prices. It has been below the central bank's 2% target for most of the last decade. A specialist broker can deliver you an exchange rate closer to the real market rate, thereby saving you substantial quantities of currency.