Do you think that the Federal Reserve will cut by 25, 50, or 0 basis points on January 30? Have your say on the DailyFX Forex forum.

Fed Funds Futures traders now price in a full probability of a 50 basis point interest cut through the FOMC meeting on January 30th—a clear negative for the US dollar. All else remaining equal, a drop in US yields could only sink the greenback further against major forex counterparts. This is especially the case against the euro, with traders now forecasting that the European Central Bank will either raise rates or leave them unchanged through 2008. The Reserve Bank of Australia is likewise predicted to continue raising interest rates through the same period—providing strong support for the Australian dollar. Time will tell if yield differentials will continue to be one of the main drivers behind currency market volatility, but outlook nonetheless remains very dim for the hopeless US dollar.

David RodriguezWritten by David Rodríguez, Currency Analyst for,

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