What exactly is the market looking for?
Recently, there are differences of opinion about whether the Fed will cut interest rates by 50 or 25 points. Markets have already estimated a decrease of 25 points, but today the estimates for a cut of 50 points are far from reality and expectations. How to trust the Fed? The market remains divided, blindly believing in the Fed's direction. Market participants remain firmly bullish and difficult to stand on the other side of the barrier. The market simply won't let you. Over the last 10 days in the FX markets, the happy dollar remains a strong preference for purchases, suggesting that cut expectations are actually decreasing.
In short, here's what the Fed funds have valued so far. The market is convinced 100% that today there will be a cut, with the only question remaining whether it will be 25 or 50 points. 50 points find support at 17% probability. However, the probability of a cut by 50 points increased to 73.6% on September 18. Looking at the year ahead, the chances of four interest rate cuts are 54.7%.
Graphs: Used with permission of Bloomberg Finance L.P.
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