Dollar volatility continues post Fed rate cut

The US dollar reacted with significant volatility to the Federal Reserve’s decision to cut interest rates by 50 basis points.

The currency remained volatile today and could continue to decline against other major currencies if the Federal Reserve adopts aggressive cuts in its following meetings.

In this regard, traders could monitor upcoming data to reassess their expectations.

U.S. Treasury yields rebounded to a certain extent after the Fed’s rate cut but could remain exposed to the downside. The 50-basis-point cut indicated a shift in the central bank’s approach and the start of the rate cut cycle as inflation approaches the 2% target. The dollar and Treasury yields may remain capped and could decline as new cuts are expected during the coming months.

Looking ahead, market participants are now focusing on the Bank of England’s upcoming interest rate decision and key U.S. economic data. The Bank of England is expected to leave its interest rate unchanged which could support the pound against the dollar. The pound could continue to gain against its US equivalent if the Bank of England adopts a slower rate cut cycle.