Powell "fully dovish", traders debate over the size of rate cuts

The long-awaited rate cut is finally coming! However, the market is still debating fiercely about the size and path of the rate cut. Federal Reserve Chairman Powell stated last Friday, "The time for a rate cut has come," which is his clearest signal to date. "This means that 25 basis points and 50 basis points are still openly debated for September." John Velis, FX and Macro Strategist at BNY Mellon, said. The U.S. August employment data to be released on September 6th is crucial. Velis stated that if the next round of data continues to fall below expectations, "then a significant 50 basis point rate cut may be possible." The shift in rate cuts is seen as unfavorable to the US dollar Analysts believe that regardless of the specific path of rate cuts, the shift in rate cuts is seen as unfavorable to the US dollar, making it a potential arbitrage trading currency, where traders borrow low-yielding dollars to invest in higher-yielding currencies or assets. All eyes in the foreign exchange market are focused on the Japanese Yen. Due to the depreciation trend of the US dollar, some investors believe that buying currencies like the Yen at this time is a wise choice. Shoki Omori, Chief Strategist at Mizuho Securities in Tokyo, stated: "The US dollar is rapidly depreciating against all currencies, including the Yen and the Brazilian Real - in this situation, investors may consider that currencies like the Yen, which have already depreciated significantly against the US dollar, ultimately have investment value, especially after Powell indicated that now is the appropriate time to adjust policy." Following Powell's speech, with the rise in US Treasury bonds, yields across all maturities fell, with the benchmark 10-year Treasury yield closing at 3.8%, down 8 basis points in a week. The DXY US dollar index has fallen over 4% since June. However, if geopolitical conflicts escalate, market uncertainty will intensify. According to CCTV News, on the 25th, Israel attacked Hezbollah positions in southern Lebanon, and on Monday, the Yen rose 0.5% against the US dollar, breaking through the 144 level.