The U.S. dollar rose in the hours leading up to the Federal Open Market Committee (FOMC) announcement on the back of growing hawkish expectations, which were downgraded after the release of the statement. Despite the correction following the committee meeting, the US dollar index (DXY) is still trading above Tuesday’s closing level, suggesting that the Federal Reserve’s data may not be enough to build new short positions on the US dollar, according to the currency analyst. Foreign at IN, Francesco Pistol.
103.0 levels seems good support for U.S. dollar bulls.
“The downward revision in the dot chart, from 25 basis points to 50 basis points for 2025, remains tighter than market pricing (65 basis points), and the Fed’s growing uncertainty on unemployment has been accompanied by warning signals about inflation, effectively portending impending cautious shifts. We see no reason to change our forecast for two 25 basis point rate cuts in 2025.”
Our bullish forecast for the dollar has not changed significantly. Reduced quantitative tightening and Federal Reserve Chairman Powell downplaying recession and long-term inflation risks supported US stocks, and futures today also point to a positive opening. The shift from US to European equities contributed significantly to the strength of the EUR/USD pair, and indicators of fading this impulse reinforce our negative outlook for the pair as we enter the second quarter.
Some important data-related events will affect the dollar in the coming weeks, as the Fed’s prices will face constant testing. Unless there is an immediate deterioration in jobs or the core CPI, we continue to believe that the implementation of comprehensive US tariffs on April 2 could provide new support to the dollar.
U.S. Dollar Improves as Other Major Currencies Decline
The US dollar is experiencing some improvement in European morning trading, as it has risen against the rest of the major currencies except the yen. The EUR/USD pair is losing momentum, falling 0.5% to 1.0840. The pair is facing a near-term trend shift, as its price has now fallen across the 100- and 200-hour moving averages.
The GBP/USD pair fell 0.4% to 1.2955 currently, and faces a new rejection of the 1.3000 level this week. Meanwhile, counter-currencies bear the brunt of the losses today, with the AUD/USD pair down 0.9% following an earlier weak jobs report. The unemployment rate stabilized, but the employment change figure was very bad.
Adding to the weight of commodity currencies is that we are starting to see a decline in risk appetite as well. S&P 500 futures rose just 0.1% on the day, while European indices are falling, with the DAX down just over 1%.
Wall Street may have regained some of its confidence in yesterday’s trading, but it’s clear that de-stressing is still difficult for now.
For now, support at 103.0 in the US dollar index may be the best that dollar optimists can get.
Goldman Sachs commented: “FOMC members’ expectations revisions were somewhat “stagflationary” in nature, with growth and inflation expectations mixed. For now, the Federal Reserve is cautious, watching whether the recent growth slowdown will develop into something more serious.
The Federal Reserve also reported a slowdown in bond sales from April, with monthly purchases reaching $5 billion, instead of $25 billion, representing a net monetary policy easing.
Federal Reserve keeps interest rates steady
The Federal Reserve kept interest rates at 4.50% at its last monetary policy meeting, which is in line with strong market expectations.
The chairman of the council, Powell, stressed that there is a high degree of uncertainty about the outlook, especially about the impact of tariffs. Concerns about weak growth and rising inflation undermined confidence in the US outlook, and the dollar weakened after the data was released.
The pound was able to regain some strength against its counter-currencies, and the GBP/USD exchange rate reached a four-month high just above 1.3000, although there was a buying appetite again above 1.3000.
GBP/EUR exchange rate rose to 1.1925.
The average federal funds rate forecast for 2025 was unchanged, although the central trend was revised slightly upward.
The economic outlook has changed significantly, raising the GDP growth estimate for 2025 to 1.7% from 2.1% previously.
However, inflation estimates were revised upwards, raising the core inflation forecast for PCE to 2.8% from 2.5% previously.
President Powell stated that tariffs will have a significant impact on inflation. He added that inflation expectations have risen recently, with tariffs being a driving factor.
Powell also commented on the rising uncertainty surrounding policy changes and economic impact. With regard to policy, it was too early to say whether it was appropriate to consider the impact of tariff inflation.
He added that there may be a delay in making further progress in inflation this year and the update of forecasts in general has increased speculation that the U.S. economy is vulnerable to stagflation, undermining dollar confidence.
