Investors bet more and more on the Fed lowering interest rates this year, as evidenced by the CME FedWatch. The FedWatch calculates the probabilities assigned to a range of target interest rates for all FOMC meetings. The euro has recently depreciated against the dollar, as a result of the performance gap between the United States and the eurozone and after US President Donald Trump has declared that the trade war begins to bring positive results, after the decline in Chinese GDP growth rate.
For the next FOMC (July 31), investors attribute a zero probability that fed funds are in the current range of 225-250 basis points, in line with the value of last week, a probability equal to 72.4% they are in the range of 200-225 basis points, down from 93.6% of the previous week, while the probabilities they are in the range of 175-200 basis points have risen to 27.6% from 6.4% of the previous week.
For the sixth FOMC of the year (18 September), investors attribute a zero probability that rates are in the current range of 225-250 basis points, in line with the value of last week, a probability of 25.6% they are in the range of 200-225 basis points, down from 33.1% of the previous week, a probability of 56.5% they are in the range of 175-200 basis points, compared to 62.7% in the previous week and a probability of 17.8% they are in the range of 150-175 basis points, up from 4.8% of the previous week.
This week, the interval that shows the highest modal value is that of 200-225 basis points only for the next FOMC meeting, while for all the others, the modal value is relative to lower intervals, even that of 150-175 basis points for the last FOMC of the year and for the first three of 2020. Investors do not expect, again, the Fed keeps interest rates unchanged at the current level during 2019 and the probability that interest rates will be cut, meaning that the monetary policy stance becomes more accommodating, has changed, with the probability distribution shifting to a more dovish stance.