Dollar whipsawed as Fed delivers normal-sized rate cut

Core Viewpoint - The U.S. Federal Reserve has cut interest rates by 25 basis points, indicating a shift in their outlook on inflation and trade policies, which has led to fluctuations in the U.S. dollar against the euro and other currencies [1][2][4]. Group 1: Federal Reserve Actions - The Federal Reserve's recent rate cut is the first since December, lowering the policy rate to a range of 4.00%-4.25% [4]. - Projections suggest that two additional quarter-percentage-point cuts are expected at the remaining policy meetings this year, reflecting a more dovish stance from Fed officials [2][3]. - Fed Chair Jerome Powell described the rate cut as a risk management decision, emphasizing a cautious approach to future rate changes [5]. Group 2: Market Reactions - Following the rate cut, the U.S. dollar initially fell to a four-year low against the euro but later recovered, trading higher during a volatile session [1]. - The euro reached its highest level since June 2021 at $1.19185 before settling lower at $1.18305 against the dollar [6]. - The dollar index, which measures the U.S. currency against six others, increased by 0.3% to 96.926 [6]. Group 3: Economic Indicators - Data released indicated a decline in U.S. single-family homebuilding and permits for future construction in August, attributed to a surplus of unsold new houses and a weakening labor market [6]. - Analysts suggest that while the dollar may face further losses, external global economic conditions will also play a significant role in its performance [7].