Citi and other big banks' 50 basis point rate cut forecasts are about to face a big test

For Citi and JPMorgan, which are boldly betting on a 50 basis point rate cut in September, the release of U.S. non-farm payrolls data on Friday will be their biggest test. More than a year, foreign exchange traders in the United States before the release of the employment report has never been so excited as now. Options used to gauge the dollar's movement against major trading partners touched their highest level since March 2023 on the eve of the key non-farm payrolls data. The risk-reversal data showed bearish sentiment pervading the dollar. Since the release of the weaker-than-expected July nonfarm payrolls data on 2 August, Citi and JPMorgan have been forecasting the Fed to cut interest rates by 50 basis points in both September and November and 25 basis points in December. Interest rate swaps indicate that the probability of a significant 50 basis point cut by the Fed at its September 17-18 meeting is about 35%, but traders and economists believe that a 25 basis point cut is still the most likely.