Investors remain solely focused on Wednesday’s Fed decision
European stocks were higher on Tuesday, while the U.S. dollar was pinned lower, a day before the U.S. Fed eral Reserve is expected to begin an easing cycle that could see policymakers deliver an outsized rate cut.
The repricing by markets in favour of a deeper cut has given a boost to risky assets and sent the dollar and bond yields lower. The pan-European STOXX 600 was up 0.5% to a two-week high. Germany’s DAX, Britain’s FTSE 100 and France’s CAC 40 were up 0.3%-0.7%. “The problem is this is a high bar for a large rate cut, particularly at the start of the easing cycle. If nothing else, it creates the impression that central bankers have made a mistake and fallen behind the curve.”The two-year U.S. Treasury yield, which typically reflects near-term rate expectations, was last at 3.5527%, having fallen to a two-year low of 3.528% in the previous session.
Still, the recent fall in U.S. Treasury yields and expectations that the BOJ will have to tighten policy further has supported the yen against the dollar.
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