US Dollar Exchange Rate: Fed Rate Cut Sees USD Drop but Analysts Suggest it is Too Early for Sell-Off

Heading into the mid-week, the US Dollar has lowered in strength following the recent rate cut by the US Federal Reserve alongside consistent pressure from the coronavirus fears which have encapsulated the whole world. The Feds rate cut arrived two weeks before the official policy meeting decision, suggesting that the US economy was in desperate need of the cut to alleviate the pressure from the coronavirus fears. However, despite the Feds emergency rate cut, analysts are forecasting that the US dollar will likely retain its strength and for longer than expected just a month ago.

Emergency Fed Reserve rate cut shocks market

A few months ago, the US dollar was one of the better performing currencies in the major currency market. Once the preferred safe haven during the coronavirus’ early outbreaks in China, USD has since seen a significant slip as the disease spreads further and further west. The fears concerning the virus seeing an outbreak in the US as well as affecting the global economy so much so that it would put the brakes on the US economy have consumed the US dollar over the past week or so, leaving it trading on a downturn. The emergency rate cut from the Fed shocked the market as the official policy decision wasn’t to be held until two weeks’ time. The decision was made on Tuesday to cut the interest rate by 50 basis points to 1.25% from 1.75%. The cut didn’t come as a shock, more the timing as currency analysts had priced in a 50bps cut, but had the timing set for the Fed’s policy meeting later this month.

Market suggests it may be too early for a mass USD sell-off

Despite the Fed’s emergency rate cut, the market remains positive that USD will hold its own through the current market crisis without shedding much of its strength. The dollar is up 1% so far this year, despite Wall Street seeing a slump of 4%. In a survey presented to market analysts before the Fed’s rate cut was announced but echoes of a cut were rumoured, a significant majority of the analysts forecast that the currency would continue to dominate trading in the foreign exchange markets for at least another six months, a view that had remained constant since the middle of 2019.

Looking ahead for the US dollar, today will see the release of the US Markit Services and Composite PMIs and the ISM non-manufacturing PMI. Should either (or both) show an uptick, the US dollar will receive a boost to help combat Tuesday’s rate cut. Meanwhile Thursday will see jobs data for February as well as the factory orders report for January.

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