Why rate cuts by the U.S. Federal Reserve matter to world markets
The HinduWhen the Federal Reserve delivers a widely-anticipated interest rate cut on Wednesday, its first in four years, the move will resonate well beyond the United States. Here’s a look at what is in focus for world markets: Follow the leader In spring, as U.S. inflation proved stickier than expected, investors questioned how far others such as the European Central Bank or the Bank of Canada could cut rates if the Fed stayed on hold this year before their currencies weakened too far, adding to price pressures. Breathing space Lower U.S. rates could give emerging market central banks more room for manoeuvre to ease themselves and support domestic growth. “We could see more idiosyncratic actions among central banks on the back of that.” Strong dollar reprieve Those economies hoping U.S. rate cuts will weaken the robust dollar further, lifting their currencies, may be disappointed. “High rates have been a critical headwind to base metals, driving a significant negative physical demand distortion from destocking and weighing on capital intensive end-demand segments,” said MUFG’s Ehsan Khoman.