Fundamental Comment

Dollar plunges as investors await Fed decision

Dollar plunges as investors await Fed decision

The US dollar moved lower against its major counterparts on Wednesday, as investors await the outcome of the Federal Reserve’s monetary policy meeting.

The dollar index, which tracks the green currency’s movements versus a basket of six major currencies, dipped to 97.38, compared to the session open at 97.52, following its drop on Tuesday.

Investors will be watching the FOMC’s decision later on Wednesday, as policymakers will decide on interest rates, with a high expectation for a rate cut in the coming few months as inflation slowed and trade tensions intensified.

Based on the CME FedWatch tool, traders are seeing a 20 percent chance of a rate cut on Wednesday and a about 90 percent of at least one rate decrease in July.

Hence, the Fed will probably leave interest rates on hold today, but markets will see whether the Fed would point to future rate cuts or not.

Fed Chair Jerome Powell has come under pressure after U.S. President Donald Trump said “let’s see what he does” when he was asked whether he wanted to demote Powell. 

The US dollar got some support yesterday from the euro, which plunged on comments by ECB President Mario Draghi as he pointed to the readiness of the central bank to cut interest and boost bond purchases.

In response, US President Donald Trump criticized Draghi's comments on Twitter, saying this would make things unfairly easier for Europe to compete with the United States.

The euro ended lower on Tuesday at $1.1193 after Draghi’s dovish remarks, while currently trading slightly higher at $1.1196.

Regarding the U.S.-China trade war, it saw some significant development as Trump said he will have an extended meeting next week at the G-20 summit in Japan and their respective teams will begin talks prior to their meeting.

"China would like to make the deal. We would like to make the deal but it has to be a good deal for everybody," Trump said.

Overnight, the S&P 500 Index edged up by 0.97 percent to close at 2,917.75, the Nasdaq Composite Index gained 1.39 percent to 7953.88 and the Dow Jones Industrial Average increased 1.35 percent to settle at 26,465.54.

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