Is the strong dollar once again pressing on Asia after several months? The Federal Reserve's "risk management" rate cuts are catalyzing a dollar comeback

According to the Zhitong Finance APP, after the Federal Reserve announced a 25 basis point rate cut early Thursday morning Beijing time, Wall Street analysts generally stated that the Fed's decision to cut rates by only 25 basis points instead of the 50 basis points some traders had bet on, along with the Fed's cautious expectations for the interest rate path in 2026, will help strongly support the rebound of the US dollar, which has remained weak for most of this year, and may put significant pressure on the exchange rates of Asian currencies in the short term. They also indicated that the recently surging technology stocks may face profit-taking and a downward trend of "buy the expectation, sell the fact."

Analysts widely believe that the Fed's latest decision to cut rates will actually help support the dollar and put pressure on the currencies of Asian countries. After the Fed announced the rate cut decision, Wall Street financial giant Wells Fargo stated that the strengthening of the dollar following the 25 basis point cut is broad-based, and Asian currencies are unlikely to escape this impact. Sumitomo Mitsui Trust Bank indicated that the dollar may continue to rise to 147 yen, although the market's long-term pessimism towards the dollar may limit its upside potential.

This is the first rate cut by the Fed in nine months, and the magnitude and timing of the action undoubtedly align with market expectations. The market's focus on the FOMC dot plot shows that the median value of interest rate forecasts suggests the Fed will cut rates three times this year, an increase from the last FOMC dot plot, with one more cut expected next year.

However, the latest specific forecast data from the FOMC dot plot indicates that future Fed rate decisions may lead to greater divergence: among the 19 Fed officials, 7 expect no further rate cuts this year, and another 2 support only one more cut. In other words, if not for the low expectations pulling down the average, the "dot plot" with the median as the final result is essentially evenly matched for one or two more cuts this year. Most officials believe that with the current outlook of robust (albeit slightly slowing) US economic vitality, there is no need for further significant rate cuts next year.

Powell also mentioned in the press conference that he believes the transmission of tariffs to inflation will continue into next year, although the speed of transmission to consumers is slower than the market expects. More importantly, Powell explained at the press conference that this rate cut is a "risk management" cut, aimed at adjusting monetary policy from the previously "moderately tight" relatively harsh level to a more neutral position, and emphasized that the Fed will maintain a "meeting-by-meeting decision-making" approach, flexibly adjusting policies based on the latest data.

The following are excerpts of the latest comments from top analysts in the financial market:

Wells Fargo Securities LLC (Brendan McKenna, Emerging Markets Strategist, New York):

"The strengthening of the dollar observed after the FOMC meeting is broad-based, and unless the Fed releases new dovish signals (which is unlikely), it is hard to imagine that Asian currency exchange rates will be excluded from this wave of dollar movement. The Fed—especially Powell at the press conference—was somewhat noncommittal about further rate cuts. In particular, we interpret the 'risk management cut' as slightly hawkish, and the overall exchange rate trend of Asian currencies may respond to this." "Some high-beta currency pairs may be the most sensitive. Therefore, in this sense, the Korean won and Indonesian rupiah may be the most sensitive, with the Philippine peso possibly being less so. Given Indonesia's latest policy direction, the rupiah may be the most sensitive."

Sumitomo Mitsui Trust Bank Ltd. (Takeru Yamamoto, Senior Trader in New York Market):

Due to the FOMC's expectation of two more rate cuts within the year, the dollar was initially sold off after the announcement, but "the dollar was significantly bought back by market traders as the market expects only one rate cut next year, and Fed Chairman Powell's press conference remarks were interpreted as slightly hawkish."

"Although the dollar may rise to the 147 yen level following the current trend, expectations for future rate cuts still put pressure on the dollar bullish market, and pessimism towards the dollar remains strong, thus limiting its upside potential."

AT Global Markets (Nick Twidale, Chief Market Analyst in Sydney Market):

"The Fed is basically in line with market expectations. So I think we will see some continuation of the U.S. session trends in the Asian forex market, but the overall reaction is relatively muted, so we may see some pullback in the market in the coming days."

"Some investors had hoped to see a more dovish Fed to push the market further up, but what we got was just the already priced-in content. I think we need another incremental catalyst to push the market to new highs, and this time the Fed did not provide that, so we may see some profit-taking momentum, especially in the tech sector of the global stock market."

TD Securities Inc. (Market Strategists Jayati Bharadwaj et al. from New York):

"We remain bearish on the dollar and view any technical rebound as a good opportunity to short at highs. Economic growth outside the U.S. is holding up and looks better compared to the U.S. Additionally, the Fed's loose monetary policy is not expected to end immediately, which may create a positive risk appetite environment, driving significantly higher risk-sensitive and currently undervalued currencies—such as the yen and the Australian dollar."

VanEck Associates Corp. (Anna Wu, Cross-Asset Strategist in Sydney Market):

"This can be said to be the most fully priced rate cut. It has been reflected in the FOMC dot plot since June. However, this does mean that the U.S. stock market has another reason to continue climbing. I think the impact on the Japanese market and the Bank of Japan is now quite limited, as market traders have basically priced it in. For me, the main focus this week is the new round of trade negotiations between China and the U.S. on Friday."

ANZ Group Holdings Ltd. (Market Strategists David Croy et al. from Wellington):

"Influenced by U.S. Treasury trends, the overall yield curve of New Zealand government bonds may shift upward and become steeper, but the final point will depend on GDP statistics. Our feeling is that the market expects weak data, so if the data is better than expected, the market may react more significantly, rather than reacting more negatively to weaker data." ”