The Fed's hawkish rate cuts supported the dollar, traders reassessed the pace of easing, and the worsening UK fiscal deficit triggered double pressure.
2025-09-20 08:51:36
The dollar strengthened on Friday, extending its rebound against most major currencies, as traders reassessed the short-term outlook after the Federal Reserve cut interest rates this week but signaled a gradual path forward.
The dollar index, which tracks the greenback against six major currencies, rose 0.3% to 97.662. It was flat for the week after falling 1% on Monday and Tuesday on hopes the Federal Reserve might initiate rapid rate cuts.
The Federal Reserve cut interest rates on Wednesday, as expected, but showed no urgency to quickly lower borrowing costs in the coming months. Its rate projection chart, known as the “dot plot,” suggested two more rate cuts were possible this year.
“It’s been a really bifurcated trading week,” said Marc Chandler, chief market strategist at Bannockburn Forex. “The vote and the dot plot weren’t as dovish as the statement and concerns about the labor market.” Chandler added: “We’re telling clients this is just a counter-trend rally. If you have to sell the dollar, there will be better prices soon.”
In an interview, U.S. Treasury Secretary Jeffrey Bessant encouraged the Federal Reserve's aggressive interest rate cuts. He said, "President Trump has been very astute in his economic management, and I think he's been right almost every time he criticizes the Fed." "The problem is, the Fed has been lagging behind. We hope they'll start catching up in a bold way."
On Thursday, Kevin Hassett, the White House National Economic Council Director and a leading candidate for the next Federal Reserve chairman, said the Fed's 25 basis point rate cut was a good first step toward significantly lowering interest rates. Analysts believe Hassett's comments indicate the White House appears to endorse the Fed's decision.
Analysts believe that the Fed's 25 basis point rate cut can be seen as a buffer and a statement to address the dissatisfaction generated by the White House through partial concessions.
"After Wednesday's rate cut sent mixed signals to the market, the market now prices a 92% probability of an October rate cut by the Fed," ADM Investor Services said in a note.
Sterling fell on Friday as Britain borrowed far more than officially forecast, adding to uncertainty about its fiscal outlook.
Sterling was one of the worst performers among Group of 10 currencies, reflecting investor concerns about whether Chancellor of the Exchequer John Reeves can control the budget. It fell 0.6% to $1.3468, its biggest two-day drop since early April.
Jane Foley of Rabobank said in a report that the Bank of England may not cut interest rates further this year, but the pound is likely to weaken as markets price in that expectation and concerns about Britain's fiscal sustainability grow. She said markets remain closely watching Britain's difficult budget situation. She said Friday's worse-than-expected August public sector borrowing data was a "timely reminder" of Britain's budgetary situation and the challenges facing Chancellor of the Exchequer Rachel Reeves as she prepares for November's Autumn Budget.
RBC Capital Markets strategists said in a report that the British pound could face further pressure in the short term as fiscal risks loom ahead of the UK's autumn budget in November. The strategists said the UK economy faces considerable uncertainty ahead of the budget. "Based on our conversations with clients, we believe most in the market are prepared for a negative reaction to the budget."
Royal Bank of Canada expects the pound to fall to $1.3400 and the euro to rise to 88.00 pounds by the fourth quarter.
The Bank of Japan announced on Friday after concluding a two-day monetary policy meeting that it would maintain the current interest rate level unchanged and would choose to sell its financial assets in the future, reduce the scale of easing, and promote the normalization of monetary policy.
The announcement showed that the Bank of Japan will continue to maintain its policy interest rate at around 0.5%. In addition, the central bank will choose the right time to sell its holdings of exchange-traded funds (ETFs) and real estate investment trusts (REITs) in the market.
At a press conference, Bank of Japan Governor Kazuo Ueda said that the Bank of Japan currently plans to sell ETFs with a book value of approximately 330 billion yen and REITs with a book value of approximately 5 billion yen each year, and the specific timing of the sale is yet to be determined.
According to the Nikkei website, ETFs with a book value of 330 billion yen currently have a market value of approximately 620 billion yen. As of the end of March this year, the Bank of Japan's ETF holdings had a total book value of 37 trillion yen, with a market value of approximately 70 trillion yen. During the COVID-19 pandemic, to address the severe impact of the pandemic on Japan's economy and markets, the Bank of Japan continued to increase its monetary easing efforts, including by expanding its asset purchase program. In March of last year, the Bank of Japan announced the end of its negative interest rate policy, initiated its first rate hike, and ceased purchasing ETFs and REITs. Since then, it has been seeking opportunities to sell its holdings.
The yen strengthened after two Bank of Japan board members unexpectedly dissented from the decision to keep interest rates unchanged, surprising investors and shifting focus back to the timing of the next rate hike.
ING expects the Bank of Japan to raise interest rates in October, and analysts say the dissenting vote gives more confidence to that view.
Markets are pricing in a 47% chance of an October rate hike, according to the London Stock Exchange Group, and analysts say the dollar's near-term fair value against the yen is overvalued, even without any recalibration of Bank of Japan rate expectations.
ING expects the dollar to fall from 147.95 yen currently to 145.00 yen in one month and 140.00 yen in three months.
The dollar index, which tracks the greenback against six major currencies, rose 0.3% to 97.662. It was flat for the week after falling 1% on Monday and Tuesday on hopes the Federal Reserve might initiate rapid rate cuts.
The Federal Reserve cut interest rates on Wednesday, as expected, but showed no urgency to quickly lower borrowing costs in the coming months. Its rate projection chart, known as the “dot plot,” suggested two more rate cuts were possible this year.
“It’s been a really bifurcated trading week,” said Marc Chandler, chief market strategist at Bannockburn Forex. “The vote and the dot plot weren’t as dovish as the statement and concerns about the labor market.” Chandler added: “We’re telling clients this is just a counter-trend rally. If you have to sell the dollar, there will be better prices soon.”
In an interview, U.S. Treasury Secretary Jeffrey Bessant encouraged the Federal Reserve's aggressive interest rate cuts. He said, "President Trump has been very astute in his economic management, and I think he's been right almost every time he criticizes the Fed." "The problem is, the Fed has been lagging behind. We hope they'll start catching up in a bold way."
On Thursday, Kevin Hassett, the White House National Economic Council Director and a leading candidate for the next Federal Reserve chairman, said the Fed's 25 basis point rate cut was a good first step toward significantly lowering interest rates. Analysts believe Hassett's comments indicate the White House appears to endorse the Fed's decision.
Analysts believe that the Fed's 25 basis point rate cut can be seen as a buffer and a statement to address the dissatisfaction generated by the White House through partial concessions.
"After Wednesday's rate cut sent mixed signals to the market, the market now prices a 92% probability of an October rate cut by the Fed," ADM Investor Services said in a note.
Sterling fell on Friday as Britain borrowed far more than officially forecast, adding to uncertainty about its fiscal outlook.
Sterling was one of the worst performers among Group of 10 currencies, reflecting investor concerns about whether Chancellor of the Exchequer John Reeves can control the budget. It fell 0.6% to $1.3468, its biggest two-day drop since early April.
Jane Foley of Rabobank said in a report that the Bank of England may not cut interest rates further this year, but the pound is likely to weaken as markets price in that expectation and concerns about Britain's fiscal sustainability grow. She said markets remain closely watching Britain's difficult budget situation. She said Friday's worse-than-expected August public sector borrowing data was a "timely reminder" of Britain's budgetary situation and the challenges facing Chancellor of the Exchequer Rachel Reeves as she prepares for November's Autumn Budget.
RBC Capital Markets strategists said in a report that the British pound could face further pressure in the short term as fiscal risks loom ahead of the UK's autumn budget in November. The strategists said the UK economy faces considerable uncertainty ahead of the budget. "Based on our conversations with clients, we believe most in the market are prepared for a negative reaction to the budget."
Royal Bank of Canada expects the pound to fall to $1.3400 and the euro to rise to 88.00 pounds by the fourth quarter.
The Bank of Japan announced on Friday after concluding a two-day monetary policy meeting that it would maintain the current interest rate level unchanged and would choose to sell its financial assets in the future, reduce the scale of easing, and promote the normalization of monetary policy.
The announcement showed that the Bank of Japan will continue to maintain its policy interest rate at around 0.5%. In addition, the central bank will choose the right time to sell its holdings of exchange-traded funds (ETFs) and real estate investment trusts (REITs) in the market.
At a press conference, Bank of Japan Governor Kazuo Ueda said that the Bank of Japan currently plans to sell ETFs with a book value of approximately 330 billion yen and REITs with a book value of approximately 5 billion yen each year, and the specific timing of the sale is yet to be determined.
According to the Nikkei website, ETFs with a book value of 330 billion yen currently have a market value of approximately 620 billion yen. As of the end of March this year, the Bank of Japan's ETF holdings had a total book value of 37 trillion yen, with a market value of approximately 70 trillion yen. During the COVID-19 pandemic, to address the severe impact of the pandemic on Japan's economy and markets, the Bank of Japan continued to increase its monetary easing efforts, including by expanding its asset purchase program. In March of last year, the Bank of Japan announced the end of its negative interest rate policy, initiated its first rate hike, and ceased purchasing ETFs and REITs. Since then, it has been seeking opportunities to sell its holdings.
The yen strengthened after two Bank of Japan board members unexpectedly dissented from the decision to keep interest rates unchanged, surprising investors and shifting focus back to the timing of the next rate hike.
ING expects the Bank of Japan to raise interest rates in October, and analysts say the dissenting vote gives more confidence to that view.
Markets are pricing in a 47% chance of an October rate hike, according to the London Stock Exchange Group, and analysts say the dollar's near-term fair value against the yen is overvalued, even without any recalibration of Bank of Japan rate expectations.
ING expects the dollar to fall from 147.95 yen currently to 145.00 yen in one month and 140.00 yen in three months.
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