As the Federal Open Market Committee (FOMC) meeting approaches on September 18, traders and investors are pondering the potential direction of the United States Dollar, with expectations of a probable interest rate cut by the Federal Reserve after years of stability. Following the release of the Consumer Price Index (CPI) showing a 2.5% year-over-year inflation rate, market speculation regarding the Fed’s decision is rife. The CME FedWatch tool indicates an 87% likelihood of a 25 basis points (bps) interest rate reduction. The overall market sentiment leans heavily towards a rate cut, with a modest 13% of investors anticipating a larger 50 bps decrease. Notably, the gap between a 25 bps and 50 bps rate cut has widened over time, especially following the recent CPI data. An analyst on TradingView has forecasted a potential crash for the U.S. Dollar index (DXY), citing the Elliott Wave theory’s third wave signaling a downward trajectory. The trader recommends a short position on the DXY against currencies like the Euro (EUR) and Japanese Yen (JPY), with the current DXY trading at 101.75. Additionally, Meta’s advanced AI model, Llama 3.1 Large, provided insights suggesting a weakening dollar with a potential consolidation prior to the FOMC meeting. However, the outlook remains unfavorable for an interest rate cut of either 25 or 50 bps. The AI model predicts a target range between 100 and 100.50, foreseeing the DXY possibly dropping to 98 if a 50 bps interest rate cut materializes. It is essential to note that the information presented does not serve as investment advice, as investing inherently carries risks.
