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Federal Reserve Chairman Jerome Powell delivered the razzle dazzle on Wednesday with a 50 basis point cut to start the rate-lowering cycle. Economists didn’t expect the move but markets had sniffed it out with Fed funds futures pricing in a 55% chance of a larger cut.
The immediate reaction was a ‘risk on’ one that include broader US dollar selling, bond buying at the front end, a jump in gold prices and higher stocks.
Equity markets are now up eight days in a row as they sensed that Powell could cut by a larger margin. In the aftermath of the cut, the Russell 2000 is particularly strong, up 1.2%.
In FX, the pound was a winner as it rose to the best levels since 2022.
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More broadly, the US dollar index fell to a 14-month low, in part due to the euro climbing to 1.1177 at the high.
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