Fed: Dovish cuts and balance sheet risks – BNY

💡 DMK Insight

If the Fed cuts rates three times instead of two, that could shift market dynamics significantly. Traders need to pay attention to how this expectation aligns with current labor market data. If conditions worsen, as Velis suggests, we could see a stronger correlation between rate cuts and asset performance, particularly in equities and bonds. A more aggressive easing stance might also lead to a weaker dollar, impacting forex pairs like EUR/USD. Here’s the kicker: if the Fed’s actions don’t match market expectations, we could see volatility spike. Keep an eye on the Fed’s upcoming meetings and labor reports for clues. The real story is how these rate cuts could ripple through the market, potentially boosting risk assets while pressuring safe havens. Watch for any shifts in sentiment around the dollar and related currency pairs, especially if labor data continues to deteriorate.