Markets seem unanimous to expect a very comfortable position – a 25 basis point drop in interest rates next Wednesday. Traders only assign a 4.5% chance of a 50 basis point decrease.
The greater intrigue, however, will be, as the central bank will signal for October. Currently, markets are almost 50/50 about whether or not FOMC will take a new turn. There is a slight advantage from the second rate cut by 58% against 42 for a break until December, when the chances are 81%.
However, according to Morgan Stanley, the Fed will not be enough enough to meet the expectations of market players.
“As a result, the dollar will launch during the day, especially against more risk-sensitive currencies such as emerging markets and other dollars.”
Eventually, they believe that the strength of the dollar will subside as a strong currency means negative effects on the economy and the Fed will begin to lower rates more aggressively
Trader Aleksandar Kumanov