As the Federal Open Market Committee (FOMC) meeting scheduled for September 18 approaches, there is anticipation among finance traders and investors regarding the potential actions of the Federal Reserve, which may include the first interest rate cut in years for the United States Dollar.
Speculations regarding the Fed’s decision have been fueled by the release of the Consumer Price Index (CPI) year-over-year inflation data, showing a rate of 2.5%. The CME FedWatch tool indicates an 87% probability of a 25 basis points (bps) interest rate reduction.
Market sentiment leans heavily towards a rate cut, with a 100% probability expected. While most investors anticipate a 25 bps cut, there is a minority, around 13%, who foresee a larger 50 bps reduction to a target range of 475 to 500 bps. This divergence in expectations has widened, particularly following the latest CPI figures.
According to an analyst on TradingView, the U.S. Dollar index (DXY) is forecasted to undergo a significant decline, potentially crashing as per the Elliott Wave theory’s third wave pattern. The analyst recommends a short position on the DXY, projecting it to perform poorly against currencies like the Euro (EUR) and the Japanese Yen (JPY), with the current DXY trading at 101.75.
In a bid to gain more insights, Finbold sought predictions from Meta’s AI model, Llama 3.1 Large, on the future movements and price changes of the U.S. Dollar Index in light of a potential interest rate cut by the Fed. The AI foresees a weakening dollar, hinting at a probable consolidation preceding the FOMC meeting. However, the outlook is not optimistic for an interest rate cut, whether it’s a 25 bps or a 50 bps decrease.
The AI model predicts a target range of 100 to 100.50 as the most probable scenario, with a potential drop to as low as 98 should a 50 bps rate cut materialize.
Disclaimer: The information presented should not be construed as investment advice. Investing carries inherent risks, and capital may be exposed to potential losses.