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US Dollar on the ropes after Fed’s fresh guidance

  • The Fed decided to hold rates at 5.25-5.50% as expected.
  • The bank revised higher GDP and inflation forecasts.
  • The official’s interest rate expectations for 2024 remained at a median of 4.6%.

The US Dollar Index (DXY) declined towards the 103.50 area, following the Federal Reserve (Fed) decision to hold rates as expected. Economic activity and inflation forecasts were revised higher while Unemployment was lower. The highlight was that the interest rate projections saw the median rate unchanged at 4.6% in relation to the last protections. As a reaction, stocks edged higher while Treasury yields declined which added pressure to the USD. 

The US economy remains resilient, with little evidence of inflation coming down and the labor market showing mixed signals. During the press conference, Jerome Powell addressed that the latest hot inflation readings do not affect the progress on inflation and that the bank won’t overreact to only two months of data.

Daily digest market movers: DXY declines as markets digest Fed decisions and Powell’s words

  • The US Federal Reserve keeps interest rates unchanged at 5.25%-5.50%.
  • The statement highlighted that the US economy remains strong and the labor market robust.
  • Regarding the upcoming meetings,  the statement confirmed that decisions will continue to be data-driven, with a focus on balancing the dual mandate.
  • Despite the latest hot inflation reports, the 2024 interest rate expectations remain at a median of 4.6%. For 2025, the Federal Funds Rate (FFR) projection was raised from 3.6% to 3.9%.
  • Regarding the economic activity protections, the GDP for 2024 was revised upwards to 2.1% from December’s 1.4% projection.
  • The Unemployment Rate is expected to stay at 4.0%, unchanged from previous forecasts.
  • The PCE Price Index target remains at 2.4%, with core PCE expected to reach 2.6% by the end of 2024.
  • During the Press conference, Jerome Powell addressed that the bank won’t overreact to two months of data and that incoming decisions will be made on the incoming reports.

DXY technical analysis: DXY bullish momentum halted, bulls must defend SMAs

The technical outlook for DXY portrays that the bears are coming into play. The Relative Strength Index (RSI) exhibits a negative slope in positive territory which typically foretells a potential downside reversal. In addition, the Moving Average Convergence Divergence (MACD) returns flat green bars, adding arguments to a bearish flip.

Nonetheless, assessing the Simple Moving Averages (SMAs), it’s clear that sellers are taking charge as the index is now positioned below the 20, 100, and 200-day SMAs convergence around 103.50. If the buyers want to extend gains, they must recover the moving averages and consolidate above the mentioned area.

Dot Plot FAQs

The “Dot Plot” is the popular name of the interest-rate projections by the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed), which implements monetary policy. These are published in the Summary of Economic Projections, a report in which FOMC members also release their individual projections on economic growth, the unemployment rate and inflation for the current year and the next few ones. The document consists of a chart plotting interest-rate projections, with each FOMC member’s forecast represented by a dot. The Fed also adds a table summarizing the range of forecasts and the median for each indicator. This makes it easier for market participants to see how policymakers expect the US economy to perform in the near, medium and long term.

The US Federal Reserve publishes the “Dot Plot” once every other meeting, or in four of the eight yearly scheduled meetings. The Summary of Economic Projections report is published along with the monetary policy decision.

The “Dot Plot” gives a comprehensive insight into the expectations from Federal Reserve (Fed) policymakers. As projections reflect each official’s projection for interest rates at the end of each year, it is considered a key forward-looking indicator. By looking at the “Dot Plot” and comparing the data to current interest-rate levels, market participants can see where policymakers expect rates to head to and the overall direction of monetary policy. As projections are released quarterly, the “Dot Plot” is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.

The most market-moving data in the “Dot Plot” is the projection of the federal funds rate. Any change compared with previous projections is likely to influence the US Dollar (USD) valuation. Generally, if the “Dot Plot” shows that policymakers expect higher interest rates in the near term, this tends to be bullish for USD. Likewise, if projections point to lower rates ahead, the USD is likely to weaken.