The Federal Reserve is widely expected to cut interest rates by a quarter point later today despite some of the arguments for a cut are now not so strong as earlier. But as this move has been priced in already, the central bank will likely ease the monetary policy further in order not to disappoint investors and avoid a sell-off in the stock market.
The question is whether the Fed leaves the door open for further cuts in December and in 2020. Considering easing trade tensions between the US and China, as well as a much lower likelihood of a disorderly Brexit along with weaker dollar, the monetary authorities could signal a pause in easing with shifting to a wait-and-see mode in order to assess the impact from the three cuts this year. In short, is could be some sort of a “hawkish” easing.
In this scenario, Powell may send the greenback higher across the board. EURUSD risks plunging below the 1.1070 intermediate support with the next target around 1.1030. However, if the Federal Reserve won’t dare to close the door to further cuts just yet, the dollar will have to extend recent losses. Anyway, the Fed’s verdict and Powell’s statement will likely trigger a pickup in market volatility.