US dollar reaction on Fed hints at slowing the pace of interest-rate cuts may be muted

Bank of America analysts suggest the dollar may show little reaction even if the Federal Reserve hints at slowing the pace of interest-rate cuts during its decision on Wednesday.

While the market anticipates a 25-basis-point rate reduction, the Fed could also indicate a pause in January. Slower rate cuts would typically support the dollar, but this impact might be tempered by the Fed’s focus on mitigating risks of inflation reacceleration, addressing rising unemployment, and maintaining a restrictive policy stance.

Additionally, a “buy-the-rumor, sell-the-fact” reaction could emerge, as the dollar has already strengthened on expectations of a cautious Fed approach to rate cuts.

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I posted earlier on what surprise may be coming up from the Federal Open Market Committee (FOMC) today:

• Fed insider says FOMC cut today, but then “a much more cautious tone about further cuts”

And:

• ICYMI – Federal Reserve ready to slow rate cuts, or even stop, after this week

FOMC statement due at 2pm US Eastern time, with Powell speaking a half hour later:

This article was written by Eamonn Sheridan at www.forexlive.com.