While the US Federal Reserve attempted to lead an interest rate rise cycle, few answered the call which resulted in the first major global interest rate policy divergence since the last global financial crisis. The US central bank ended its campaign in December of 2018 amid heavy political pressure as well as a global economy which started to come to grips with the severity of the trader war the US started with China as well as other trade spats the Trump administration ushered in. The US Dollar enjoyed the tailwind provided by the central bank as it was the only major central bank which was increasing interest rates while other central banks kept interest rates are or near all-time lows.
Many analysts and economists have warned against the increase in interest rates in the current global economic environment while a small number have highlighted that the US central bank could cut interest rates as soon as the end of 2019. James Bullard, the St. Louis Federal Reserve President, has now opened the possibility for such a move. He noted that an “interest rate cut may be warranted soon”, and added “The Fed faces an economy that is expected to grow more slowly going forward, with some risk that the slowdown could be sharper than expected due to ongoing global trade regime uncertainty.” Global PMI data has slowed more than economists expected over the past months and the trend is likely to accelerate. Plenty of forex traders have not fully priced in the much weaker than expected economic outlook and will have to catch up. This is expected to add more short-term volatility to the forex market.
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