Paul Tudor Jones on Fed rate cuts
Paul Tudor Jones has told Bloomberg that he expects an aggressive but short period of rate cuts by the Fed, which is set to meet on June 18 and 19. Whereas the market has not priced in a rate cut in June, at least two rate cuts are expected by the end of the year.
Jones’s strategy to play Fed rate cuts
According to Bloomberg, Jones believes Fed rate cuts, accelerated by trade tensions, have set the stage for his strategy, “first rate cut 101.” His strategy involves long rates, gold, and “at some point short the dollar.”
Long gold, short US dollar
As the odds of Fed rate cuts rise, gold is becoming more attractive. Since Donald Trump’s tweet on May 5 revived trade tensions, the SPDR Gold Shares ETF (GLD) and VanEck Vectors Gold Miners ETF (GDX) have gained 3.8% and 11.3%, respectively, and the S&P 500 (SPY), Dow Jones Industrial Average (DIA), and NASDAQ Composite (QQQ) have fallen 1.7%, 1.4%, and 4.0%. As gold doesn’t yield regular income, lower interest rates increase its appeal.
The US dollar (UUP), on the other hand, usually moves with rate hikes. As rates rise, the dollar’s attractiveness compared with other currencies increases. The dollar has started weakening with expectations of Fed rate cuts, falling ~1% this month.