With the first Federal Reserve interest rate cut of 2025 now considered to be secured, world markets are eager for indications of how much more may follow. The dollar has managed to stabilize at four-year lows against the euro in anticipation of today’s decision. Futures remaining unchanged ahead of today’s market opening. Expectations for a Federal Reserve rate cut have now settled at precisely 25 basis points, following the announcement of a robust 5% annual growth in retail sales for August, which dampened speculation regarding a more significant adjustment this week.

Gold has also retreated. Despite that, U.S. long bonds continued to rally, indicating further developments ahead. Supported by strong demand for 20-year debt during Tuesday’s auction, the 30-year yield reached a 4-1/2 month low of 4.62% in anticipation of the Fed announcement. Hong Kong shares concluded trading at their peak in four years, driven by the anticipated Federal Reserve rate cut, a declining dollar, and strong performance from local technology stocks. With indications of foreign capital returning, there is an increasing confidence in China’s artificial intelligence capabilities. Additionally, U.S. President Donald Trump’s announcement regarding a deal to allow TikTok to continue operating in America has heightened the appetite for risk assets.

The presidents of the United States and China are scheduled to address the public on Friday. In contrast, Nvidia experienced a decline on Tuesday, falling an additional 1% overnight due to reports indicating weak demand in China for a new AI chip. This drop was further exacerbated by the Financial Times’ report that China’s primary regulator instructed major tech companies in the country to cease all purchases of Nvidia’s AI chips. The euro experienced a notable increase, reaching a four-year peak against a declining dollar on Tuesday. However, the dollar showed signs of stabilization today, with the dollar index rebounding slightly from its two-month lows. However, China’s offshore yuan continues to surge, reaching its strongest level of the year and the highest since the U.S. election. Japan’s yen reached its highest level in a month in anticipation of Friday’s Bank of Japan decision, while the Canadian dollar remained stable ahead of the expected quarter-point rate cut by the Bank of Canada on Wednesday. The soft Canadian inflation data released on Tuesday for August highlighted expectations for a potential easing by the Bank of Canada.

The Australian dollar retreated from the one-year peak it reached on Tuesday. As Trump makes his visit to Britain and the Bank of England prepares for its policy decision tomorrow, sterling remains near two-month highs against the struggling dollar, while UK stocks and gilt prices show signs of strength. During the state visit, Britain and the United States established a technology pact aimed at enhancing collaboration in AI, quantum computing, and civil nuclear energy. Leading U.S. companies, including Microsoft, committed to investing 31 billion pounds ($42 billion) in the UK. The Bank of England’s easing bets for the remainder of this year have been dismissed, as UK inflation in August remained at 3.8%, aligning with expectations and marking the highest inflation rate among major advanced economies. In this column, I examine the possibility of the Fed initiating stimulus measures in an already robust economy and analyze the complexities involved in pinpointing the precise location of “neutral.”