Dollar Weakens as Markets Anticipate Potential Fed Rate Cuts
The Colombian peso strengthened against the dollar yesterday, closing at $3,898.04 – an $8.2 decrease compared to the official exchange rate (TRM) of $3,906.24. Throughout the day, the dollar traded between a low of $3,881 and a high of $3,914.50, with a total of 1,400 transactions amounting to US$982 million. This represents the lowest closing value since June 1st,2024,when the dollar closed at $3,860.92.
This movement is linked to global trends, as the dollar experienced a broad decline on Monday amid expectations that the Federal Reserve may begin lowering interest rates at its upcoming meeting. Former President donald Trump publicly urged Federal Reserve Chairman Jerome Powell to implement a “major” rate cut, citing concerns about the real estate market.
Market analysts predict a 25 basis point reduction in interest rates at the Federal Open Market Committee meeting scheduled for September 16th and 17th, with a roughly 5% probability of a more ample 50 basis point cut, according to the CME Fedwatch tool.
“What we see is simply a lack of generalized conviction, with operators relatively content to remain on the sidelines until the outcome of the FOMC meeting on Wednesday is known,” noted Michael Brown, a market analyst at Pepperstone in London.He added that trading positions are likely to remain stable in the short term, possibly increasing activity after the FedS proclamation.
The DXY dollar index, which tracks the dollar’s strength against a basket of six major currencies, fell 0.4% to a near one-week low of 97.273. The dollar also weakened against the Japanese Yen, dropping 0.2% to 147.335 yen, while the euro gained 0.3% to US$1.1771.
Despite recent stabilization, many currency market participants believe the dollar remains on a downward trend.Investors will be closely scrutinizing the Fed’s economic projections and Chairman Powell’s commentary to assess the potential scale and timing of future interest rate adjustments.
Goldman Sachs analysts anticipate the Fed’s statement will acknowledge a softening labor market, but do not foresee a shift in monetary policy or an indication of a rate cut in October.
Beyond the US, investors are also monitoring interest rate decisions from central banks in Japan, the United Kingdom, Canada, and Norway this week. The Bank of england and the Bank of Japan are widely expected to hold rates steady. Focus is especially on the Bank of England’s plans regarding the pace of reducing its government bond holdings, and on signals from the Bank of Japan that coudl indicate a potential rate hike later this year.
