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The U.S. dollar index retreated from its rebound from its lowest level in a month, coming under pressure after a two-day downtrend.
Fed pause hawks, dot plots and upbeat economic forecasts fail to attract dollar bulls.
The upcoming U.S. data appears to be more important, as Powell’s speech emphasized that the interest rate decision will be discussed on a “meeting-by-meeting basis”.
During the early Asian session on Thursday, the U.S. dollar index (DXY) quoted fresh intraday lows around 102.95, a daily low, and the U.S. dollar index failed to hold on to its consolidation rebound from its lowest level in a month late on Wednesday. In this way, following the Fed’s pause in raising interest rates, the volatility of the U.S. dollar index reflects the market’s maintenance of dovish expectations for the U.S. Federal Reserve.
The Federal Open Market Committee (FOMC) kept the Fed’s benchmark interest rate unchanged at 5.0-5.25%, in line with market expectations that the Fed has paused its 10th consecutive cycle of promoting interest rate hawks.
After the interest rate decision, the Federal Reserve issued a hawkish signal in its economic forecast, while speeches from Fed Chairman Jerome Powell also showed the central bank’s optimistic tendency.
Notably, the dot plots for 2024 and 2025 are up 30 basis points from March, at 4.6% and 3.4%, respectively, while the median rate forecast points to two more hikes in 2023. Additionally, no rate cuts or recession are expected this year, while the median estimate for U.S. gross domestic product (GDP) rose to 1.0% from 0.4% in March. In addition, Powell’s speech announced a “meeting-by-meeting” approach to discuss decision-making, but indicated that July was a “live” meeting, hinting at a 0.25% rate hike.
Ahead of the Fed’s decision, the U.S. May producer price index (PPI) fell to 1.1% year-on-year, compared with expectations for 1.5% and the previous reading of 2.6%.
Following market volatility from the Fed decision and a drop in the U.S. dollar index, U.S. dollar index traders are likely to focus on U.S. retail sales in May and secondary economic activity data for May and June, as the Fed highlighted the importance of each upcoming data release for the decision. Very important.
If the US dollar index closes below the 100-day moving average on a daily basis, the current adjacent support around 103.05 will keep bears looking forward to it.
