FOMC Reaction

The US Dollar has seen plenty of whipsaw over the last 12 hours as traders digest the details of the September FOMC meeting yesterday. The Fed cut rates by .25% as expected, including one dissenting vote in favour of a larger .5% cut, and signalled further rate cuts to come. However, USD bears were left a little underwhelmed by the updated dot plot forecasts. The Fed projects just two cuts this year, one less than the market was looking for, and just three cuts for the full cycle, again lower than the roughly 4.5 cuts the market was pricing. The initial bearish USD reaction in response to the rate cut was seen quickly reversing with DXY trading higher into and through the press conference.

Powell’s Comments

Powell’s post-meeting remarks were then seen further dampening the bearish USD reaction. While acknowledging the weakness in the labour market, Powell focused on continued tariff-driven-inflation risks and stressed that any further easing would be determined on a meeting-by-meeting basis, with no pre-set path, referring to the cut as a ‘risk management cut’. Additionally, the inflation outlook was kept unchanged while the growth outlook was raised slightly, adding further uncertainty.

Near-Term View

For now, DXY is likely to continue to range while traders await fresh cues on the back of the meeting. The board view now is that any US data weakness will feed into higher near-term rate cut expectations, leading USD lower, while any upside surprises will have the inverse effect.

Technical Views

DXY

For now, the index remains atop the 96.63 level after briefly piercing it and breaking to new YTD lows yesterday. Bulls need to see a move above 98.24 to alleviate near-term bearish risks, however, with 94.85 the next bear target if we do break lower.