Meanwhile, ahead of the Federal Open Market (FOMC) Chairman Jerome Powell’s speech at 15:00 GMT, the US Dollar Index is staying calm near the 99 handle to allow the risk perception to remain as the sole driver of the pair’s action. More importantly, the FOMC will be releasing the minutes of its September meeting later in the US evening.
In September, a divided Fed voted in favor of bringing the benchmark interest rate down a quarter point to a band of between 1.75% and 2.00%. Three officials had voted against the decision, with Kansas City Fed President Esther George and Boston Fed President Eric Rosengren calling for rates to remain unchanged from their previous level, and St. Louis Fed President James Bullard calling for a more aggressive half-point reduction.
“Going by the accompanying ‘dot plot,’ close to a third of officials disagreed with the decision to cut rates at the September meeting, and a third projected leaving rates unchanged from then on. That leaves only a third in favor of more action this year,” Paul Ashworth, chief U.S. economist for Capital Economics, wrote in a note Friday. “The minutes should give us better insight into what it would take to convince that two-thirds majority to change their mind and vote for another cut later this year.”
In the weeks since the Fed’s last meeting, data on the domestic economy has weakened considerably, offering a stronger case for lower rates to help prop up flagging growth. As of Tuesday afternoon, markets priced in an about 80% probability of another quarter point cut to the benchmark interest rate after the October meeting, up from around a 30% probability just a few weeks ago.
Activity in the U.S. manufacturing sector, which has been enduring a well-documented slowdown this year, fell to a 10-year low in September, the Institute of Supply Management said last week. The larger U.S. service sector also saw activity decelerate for the month to a three-year low, stoking fears that a growth slowdown had spilled over into sectors that had previously remained more robust. And the September jobs report came in mixed, with unemployment rate hitting a new 50-year low but job gains coming in at a slightly slower-than-expected pace, with softness especially appearing in retail and goods-producing employment.