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.
