Fed Rate-Cut Bets Send Dollar Sliding and Bonds Rally

Lead: The U.S. dollar slid to multi-month lows against major peers and Treasury yields rallied on Tuesday as investors fully priced in a 96% chance of a 25-basis-point Federal Reserve rate cut at this week’s FOMC meeting in Washington.

Nut Graf: Heightened expectations of the Fed’s first rate reduction of 2025 have driven traders into longer-duration Treasuries and dampened the greenback, underscoring a shift from nine months of policy tightening toward monetary easing to support a cooling labor market.

Market Moves

• Currency: The dollar fell to its weakest level in over two months versus the euro and sterling, and hit a ten-month trough against the Australian dollar as rate-cut odds spiked.
• Bonds: Investors snapped up 10-year U.S. Treasuries, steepening the yield curve as demand for longer maturities soared ahead of the Fed’s announcement.
• Futures: CME FedWatch data shows a 96% probability of a 25-basis-point cut on Wednesday and only a 4% chance of a larger move, reflecting near-unanimous market conviction.

Current Fed Policy

• The Federal Open Market Committee has maintained the federal funds target range at 4.25%-4.50% since December 2024 and is expected to lower it to 4.00%-4.25% at the conclusion of its two-day meeting on September 17.

Broader Impact

• Mortgage and Loans: With Treasury rates pulling back, average 30-year mortgage rates dipped, offering relief to homebuyers and refinancers this week.
• Economic Outlook: Slowing job growth-just 22,000 jobs added in August-and rising unemployment have tilted the Fed’s dual mandate toward supporting employment over inflation control.

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