On Wednesday, the Federal Reserve revealed that it was willing to cut rates this year, leading to the U.S. dollar sliding to a three-month low.
Thus, the U.S. dollar index dropped to 96.180, equating to a loss of 0.4%. The index is used to determine how strong the USD is against six other major currencies.
Fed policymakers indicated that they would look at cutting rates as a measure against a slowdown in global growth and waning inflation. They also reduced their rate forecast for the remainder of 2019.
Chairman Jerome Powell stated that many officials felt that the case for an easing of the monetary policy has become stronger.
Fed Still Maintains Rates
Despite the indication of a willingness to cut rates, June’s FOMC meeting saw the committee vote to maintain the rate in its target range of between 2.25% and 2.5%. The vote was nine in favor with one against maintaining the target.
In fact, they went on to say that no cuts would be coming in 2019, even if Jerome Powell sent a different message in his press conference.
However, the Fed’s actions could create a sticky situation between Chairman Jerome Powell and President Donald Trump.
There has been friction between the two because Trump keeps insisting that the Fed cut rates. When asked on Tuesday whether he still wishes to demote the Fed’s Chairman, Trump stated he would wait to see what Powell does.
After the press conference, when asked, Powell stated that the law was clear and that the Chairman of the Fed has a four-year term, which he intends to serve in full.
At the meeting, eight FOMC members voted for one rate cut this year, another eight voted to maintain the situation, while one voted for an increase in rates.
According to experts, this split vote is an indication that a rate cut isn’t far off. In fact, many suspect it will happen in July.
The Fed also announced that they would no longer be “patient” but would instead act when it was necessary to ensure economic expansion has the support it needs to continue. Furthermore, they pledged to keep a close eye on how incoming information would potentially impact the economic outlook.
USD Slides Against the Japanese Yen
As per usual, investors retreated to the Japanese yen, which is a traditional safe haven. As a result, the USD/JPY fell to 107.63, equating to a decline of 0.4%.
While the Bank of Japan maintained interest rates at the same level, they did also issue a warning regarding the risks of a slowing of global economic growth. They also indicated that they would be willing to boost stimulus to provide the Japanese economy with support.
GBP and EUR Strengthen Against the USD
Even the concerns around a no-deal Brexit were unable to overshadow the FOMC decision. Thus, the GBP gained a little ground against the USD rising from a low of 1.2506 at the beginning of the week to trade at 1.2703 at the time of this writing.
Likewise, weak economic data out of the Eurozone was apparently less interesting to the market than the results of the FOMC meeting, leading to the EUR strengthening against the USD. Thus, from a low of 1.1181 at the start of the week, the EUR/USD was trading at 1.1289 at the time of this writing.