Powell tempers expectations, markets adjust accordingly
The U.S. dollar climbed on Wednesday after Federal Reserve Chair Jerome Powell pushed back against expectations of another rate cut in December. The move followed a quarter-point rate cut as anticipated, but Powell emphasized that future reductions are not guaranteed and consensus within the Fed remains uncertain.
Dissent from two key policymakers underscored that divide. Governor Stephen Miran advocated for a deeper cut, while Kansas City Fed President Jeffrey Schmid opposed any easing, citing persistent inflation. Analysts noted Schmid’s hawkish stance reflects a growing hesitation within the central bank to continue easing aggressively.
Following Powell’s remarks, market odds for a December rate cut dropped from 85% to 62%. The Fed also announced it would restart limited Treasury purchases to address tightening liquidity in money markets.
Currency markets react to Fed and global signals
The dollar index rose 0.63% to 99.28. The euro fell 0.56% to $1.1585, while the Japanese yen weakened 0.56% to 152.86 per dollar after briefly gaining earlier in the day.
U.S. Treasury Secretary Scott Bessent added to the tension by urging Japan to allow its central bank more room to raise interest rates, intensifying criticism of the Bank of Japan’s continued low-rate policies. His comments came during meetings with Japan’s new Prime Minister, Sanae Takaichi, as President Trump prepares to meet with China’s Xi Jinping on Thursday amid key trade negotiations.
Pound and loonie hold under pressure
The British pound fell sharply, down 0.9% to $1.3151, hitting a five-month low. Traders are increasingly betting on a Bank of England rate cut next week, fueled by weakening wage growth and a steady inflation print. Scotiabank analysts suggested the softening labor market has given the central bank room to act.
Goldman Sachs also adjusted its forecast, now expecting a BoE rate cut in the coming month. The Canadian dollar, by contrast, remained largely unchanged after the Bank of Canada lowered its key rate to 2.25% and signaled it may now pause further cuts unless economic conditions worsen.
