The European Central Bank (ECB) has cut interest rates for the first time since 2019, from 4% to 3.75%. TD Bank Global Head of FX & EM Strategy Mark McCormick joins Catalysts to break down how the forex market is digesting the news and what the move could signal for the Federal Reserve's next interest rate decision.

McCormick notes that the rate cuts were fully priced into the FX market, adding that the big piece is what the ECB will do next. While the markets want further insight, the ECB reiterated that its next moves will be data-dependent, which he explains "overtakes the ability for them to provide any credible forward guidance." Because of that, McCormick says that we're in a guessing game ahead of the ECB's next meeting in July.

He adds, "The challenging part about the currency markets is it's always kind of multi-dimensional," as it constantly has to adapt to an evolving market. McCormick explains that with the US economy slowing while Europe recovers, "the market can't really make its mind up whether or not it wants to sell the dollar on the converging growth story, or whether or not it wants to buy the dollar on the diverging inflation story." He says that while many of the G10 central banks have cut rates, the Fed still has not made a move, which could "challenge this Goldilocks environment we're in where FX volatility is very low."

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This post was written by Melanie Riehl