- PIMCO warns that a rate cut may lead to temporary U.S. dollar weakness, as historically, the dollar has softened following initial rate cuts by the Fed
The only event that matters next week is the US Federal Reserve’s interest rate decision, which could result in its first rate cut in over four years
PIMCO analysts, in a fresh note, outlined what could be in store for the U.S. dollar as the Fed embarks on its rate-cutting cycle. Historically, the dollar has shown a tendency to weaken, at least briefly, following the Fed’s initial rate cuts since the 1990s.
The Fed now faces a tight decision on whether to opt for a larger-than-expected half-point cut or stick with a quarter-point reduction.
An aggressive half-point move could raise concerns that the central bank is concerned about the economic outlook for the US, potentially prompting markets to price in further, more drastic rate cuts beyond the Fed’s current trajectory.
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