Thursday, June 5, 2025

Fed’s Big Cut Sends Currency to Lowest in Over a Year!

Reuters

On Wednesday, the value of the U.S. dollar in the foreign exchange market fell to its lowest level in 14 months.

This drop resulted from the Federal Reserve’s decision to implement a 0.5%p interest rate cut, known as the big cut.

The Federal Reserve concluded its two-day Federal Open Market Committee (FOMC) meeting with an 11-1 vote in favor of the reduction, lowering the target range for the federal funds rate from 5.25%- 5.5% to 4.75%- 5.0%.

This marked the first substantial 0.5 percentage point cut since the 2008 global financial crisis and the onset of the COVID-19 pandemic in 2020.

With this decision, the Federal Reserve initiated its first interest rate reduction in four and a half years, signaling the beginning of a new rate-cutting cycle. 

The Fed’s dot plot, which reflects anticipated interest rate levels from FOMC members, indicated plans for an additional 0.5 percentage point cut later this year, a 1.0 percentage point cut next year, and another 0.5 percentage point cut in 2026.

This suggests expectations that the benchmark interest rate could fall to between 2.75% and 3.00% by 2026.

According to CNBC, this decision resulted in the dollar index, which measures the dollar’s value against six major currencies, falling by 0.46% to 100.45, marking its lowest level since July last year. In contrast, the euro rose by 0.46%, reaching $1.1164 per euro.

The British pound gained 0.8%, buoyed by expectations that the Bank of England (BOE) would likely maintain the benchmark interest rate at the current 5% during its monetary policy committee (MPC) meeting on the 19th. The BOE’s decision to keep rates steady amid the Fed’s cuts enhances the pound’s attractiveness. The pound traded at $1.3265, marking one of its highest increases against the dollar this year.

The Japanese yen also experienced gains, rising by 0.2050 yen (0.1440%) to reach 142.1330 yen per dollar amid expectations that the Bank of Japan (BOJ) will raise interest rates soon.

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