The dollar index (DXY00) on Wednesday tumbled by -1.04% and posted a 1-1/2 week low. The dollar sank Wednesday after the FOMC left the fed funds target rate unchanged for the third consecutive meeting and forecasted 75 bp of interest rate cuts for next year. A plunge in Treasury yields on Wednesday weighed on the dollar, and a sharp rally in stocks also curbed liquidity demand for the dollar. In addition, Wednesday’s weaker-than-expected U.S. Nov PPI report is dovish for Fed policy and bearish for the dollar.
The markets are discounting a 14% chance for a -25 bp rate cut at the Jan 30-31, 2024, FOMC meeting. The markets are then discounting an 85% chance for that same -25 bp rate cut at the March 19-20, 2024, FOMC meeting and are discounting a 73% chance of -50 bp of rate cuts by the April 30-May 1, 2024, FOMC meeting.
