US dollar falls as the market prices in a more-dovish Fed after the ISM data

The market isn’t holding back.

Bonds are rampaging higher and the Fed funds futures market is sensing deeper and quicker cuts. September Fed funds now price in a 16% chance of a 50 bps cut and cuts are nearly fully priced in at the next five meetings, running through March 2025. Pricing for June 2025 is at 168 bps from 150 bps at the start of the week.

Turning to bonds, US 10-year yields have fallen below 4% and are down 12.5% today.

The US dollar isn’t fully reflecting these moves because they’re global. If the US economy rolls over, then the pain elsewhere would also be acute.

Today’s US ISM manufacturing index fell to 46.8 from 48.5 previously. The employment component also sank to the lowest since 2020 just ahead of tomorrow’s non-farm payrolls report.

The US dollar initially dropped on the report but has since rebounded as the risk trade deteriorates. The S&P 500 is now flat on the day, shedding 40 points from the peak.

Online furniture retailer Wayfair today said that interest rates were biting hard.

“Q2 was a dynamic quarter that resulted in another period of share gain, amid continued macro headwinds that are pressuring the ways customers are shopping the category. Customers remain cautious in their spending on the home, and our credit card data suggests that the category correction now mirrors the magnitude of the peak to trough decline the home furnishing space experienced during the great financial crisis,” said Niraj Shah, CEO, co-founder and co-chairman.

This article was written by Adam Button at www.forexlive.com.