Waller from the Fed weakens the dollar and causes a decline in US bond yields

Courses EUR / USD yesterday it exceeded the psychological level of 1,10. For now, only for a moment, because this morning the main currency pair slightly corrected these increases and fell slightly below this level. The weaker dollar is not the result of macro data from the US. These turned out relatively well. Here, the strength of the USD was influenced by the words of Christopher Waller from the Fed, who was the first official to point to possible interest rate cuts in the US.

However, rate cuts are possible

Waller is generally a hawk, so there's that a real turn on his part and the first tip from any official Fedthat rate cuts are coming or may come. He mentioned that if inflation continues to fall for a few more months, interest rates could be lowered.

The market already values ​​over 50 percent. chances of a rate cut at the meeting in May and over 60 percent. probability of next move in June 2024. As a result, we observe significant sales of the US dollar. The yield on 2-year US government bonds fell to around 4,72%. (this morning 4,67 percent), while before noon on Tuesday they were at approximately 4,88 percent. There was also a visible upward movement on Wall Street stock indices, but here the reaction was moderate.

In addition to Waller's "dovish" comments, there were also comments from Michelle Bowman for further tightening of monetary conditions, however, the market has been receiving similar statements for a long time, so they did not attract much attention from investors.

Easing monetary policy

I just wonder whether Waller's statement was planned and agreed among a wider group of Fed employees. There is no doubt that rate cuts will come sooner or later. The Fed (mainly Powell) communicated to the world that further upward movements in the cost of money are "in play". Now, when macro data are slowly starting to cool down and the disinflation process is progressing, perhaps the Federal Reserve has decided that it is time to slowly communicate to the market about possible easing of monetary policy, so that in a few months there will be no major shock, which would be reflected in high volatility. Perhaps the US central bank's plan is to act gradually, which is why such a message came from Waller and not Powell himself.

Source: Łukasz Zembik, OANDA TMS Brokers