Dollar Dips, Global Stocks Steady as Traders Anticipate Fed Decision

On Wednesday, the dollar slipped while Treasury yields rose slightly and global stocks steadied as traders considered a Federal Reserve interest rate cut. The U.S. currency dropped 0.5% against the yen, while U.S. bond yields inched higher. Markets fully priced in a 25 bps cut, with a 61% chance for a 50 bps cut.

The dollar experienced a decline on Wednesday, with Treasury yields inching higher and global stocks maintaining stability as traders assessed the likelihood of a significant Federal Reserve interest rate cut expected later in the day. The U.S. currency fell 0.5% against the yen, reversing approximately half of Tuesday's gains, which had been bolstered by unexpectedly robust U.S. retail sales data that weakened the case for aggressive Fed easing.

Amid this, U.S. bond yields ticked upwards. The 2-year Treasury yield, notably sensitive to short-term rate expectations, increased by 2.5 basis points to 3.617%. The potential for a substantial 50 basis point cut by the Fed was revived earlier in the week following media reports hinting at the possibility of more vigorous action.

Financial markets have fully priced in a 25 basis point rate cut, with LSEG data indicating a 61% probability for a 50 basis point cut by Wednesday. "We love this debate - everyone's very focused on 50 or 25 but what is important is that they communicate to the market that they intend to go neutral by next summer," commented Samy Chaar, Chief Economist at Lombard Odier.

(With inputs from agencies.)