Fed Meeting in Focus: Cut Likely, Guidance Will Drive Dollar Response
Traders are now squarely focused on Wednesday’s FOMC rate decision and accompanying statement. While a quarter-point cut to a 3.75%–4.00% target range is fully priced in, market reaction will hinge on forward guidance and Chair Powell’s tone in the post-meeting press conference.
With job growth slowing and inflation moderating, the Fed is under pressure to support labor conditions without reigniting price risks. The central bank’s challenge is compounded by limited data visibility, as the shutdown has delayed key labor and spending reports.
If the Fed signals additional cuts are likely, that would increase downside pressure on the dollar. Conversely, any effort to downplay further easing could offer near-term support to the index.
Treasury Yields Reflect Cautious Policy Outlook
Bond markets echoed this sentiment shift. The benchmark 10-year yield retreated below 4% to close near 3.966%, while shorter maturities showed similar declines.
With the Fed now weighing labor market deterioration more heavily than inflation risks, fixed income traders are positioning for a slower policy path through year-end. This cautious tone limited dollar upside, even as international rate expectations trended lower.
