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Dollar rallies as Fed rules out lengthy easing cycle; Treasury yields climb

Fed cuts rate by 25 basis points in "midcycle adjustment."

Treasury yields, dollar climb; Wall Street to open higher.

➤ Sterling falls as Bank of England cuts 2019 GDP growth forecast.

➤ Europe edges higher as Shell falls; Asian stocks close in the red.

Futures point to Wall Street recovering some of yesterday's losses at the open, while the dollar strengthened and Treasury yields rose after the Federal Reserve signaled that its first rate cut in a decade would not be the start of a lengthy easing cycle.

As widely expected, the Fed cut its benchmark interest rate by 25 basis points, an action that Chair Jerome Powell described as a "midcycle adjustment." The central bank also announced that it will end its quantitative tightening program to shrink its $3.8 trillion balance sheet in August, two months earlier than planned.

While Powell kept the door open for further easing this year, saying the Fed will "act as appropriate to sustain" the U.S. economy's expansion, he remarked that the rate cut does not indicate the "beginning of a long series of rate cuts." President Donald Trump rebuked Powell for not lowering the rate enough, but welcomed the Fed's move to end quantitative tightening.

"The Fed never cuts rates just once and we doubt it will this cycle," said James Knightley, chief international economist at ING, in a note. "The language in the Fed statement is fairly vague and offers room for flexibility over [the] coming months."

The dollar index, which measures the U.S. currency's performance against a basket of major peers, climbed 0.4% to a two-year high of 98.89 as of 7 a.m. ET. The yield on 10-year Treasurys added 3 basis points to 2.04% while that on two-year notes rose 3 basis points to 1.90%.

The S&P 500 closed 1.1% lower yesterday following the Fed's rate decision, but futures point to the index recovering some of those losses at today's open.

Asian equities weakened in the aftermath of the Fed's rate cut and following the conclusion of the latest round of trade talks between the U.S. and China, with the MSCI index of Asia-Pacific stocks outside Japan losing 0.8%. The Nikkei 225 ticked up 0.1% while Hong Kong's Hang Seng and the Shanghai Composite SE fell 0.8% each.

In Europe, the FTSE 100 struggled for direction as shares of Royal Dutch Shell PLC dropped more than 4% on the back of disappointing earnings, while London Stock Exchange Group PLC surged more than 7% as it agreed to buy Refinitiv for $27 billion. France's CAC 40 gained 0.8% while Germany's DAX rose 0.5%, with Siemens AG shares dropping more than 4%.

The yield on 10-year German bunds added 2 basis points to negative 0.42% while the euro depreciated 0.3% against the dollar as data showed the eurozone manufacturing sector contracting in July at the fastest rate since 2012-end.

Sterling lost 0.4% against the dollar as the Bank of England maintained interest rates and lowered its U.K. GDP forecast for 2019. The Japanese yen fell 0.2% against the dollar.

Among commodities, Brent crude lost 1% to $64.40 per barrel on the ICE Futures Exchange. Gold slipped 1.3% to $1,418.90 per ounce.

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The day ahead:

8:30 a.m. ET – U.S. jobless claims (Econoday consensus: 214,000)

9:45 a.m. ET – U.S. manufacturing Purchasing Managers' Index

10 a.m. ET – U.S. ISM manufacturing index (Econoday consensus: 51.9)

10 a.m. ET – U.S. construction spending (Econoday consensus: 0.3%)

10:30 a.m. ET – U.S. EIA natural gas report

4:30 p.m. ET - Fed balance sheet and money supply

7:50 p.m. ET – Bank of Japan monetary policy minutes