Fed rate cut bets rise on Brexit shock

UK voted to leave EU on Friday, rattling financial markets across the globe and dampening the already weak global growth outlook.

Investors have begun speculating a possible interest rate cut by the Federal Reserve this year. As of now, the CME data shows a 7% probability of a rate cut this year.

Meanwhile, Fed is not seen moving rates at least till February 2017. This should not come as a surprise since Fed April minutes and June policy statement had expressly called Brexit as a risk to US economy.

The shift in sentiment towards rate cut is also evident from the sharp drop in the short-duration treasury yields in the US. The two-year treasury yield, which mimics rate hike bets, fell on Friday from a high of 0.755% to 0.499%. At the time of writing, the yield was trading at 0.574%.