FOMC Meeting Analysis: DXY Unchanged Amidst Fed Powell’s Most Milquetoast Manifesto Yet

FOMC Meeting Key Points

The FOMC left interest rates unchanged in the 5.25-5.50% range as expected.
With few changes to the policy statement and little in the way of notable developments in the press conference, markets are consolidating.
Watch resistance near 107.25 in the US Dollar Index.

FOMC Interest Rate Decision

As expected, the FOMC left interest rates unchanged in the 5.25-5.50% range.

FOMC Monetary Policy Statement

The central bank made relatively few tweaks to its monetary policy statement:

Economic activity “expanded at a strong pace” (vs. “has been expanding at a solid pace” previously)
Job gains have “moderated sine earlier in the year” (vs. “slowed in recent months”)
Added “financial conditions” as a factor that may weigh on economic activity

The mention of financial conditions suggests that the recent increase in market-based interest rates may have done some of the central banks work for it, but the FOMC nonetheless left its comment about “remaining highly attentive to inflation risks” in the statement, suggesting that one more interest rate hike is still on the table.

Source: Federal Reserve, StoneX

Fed Chairman Powell’s Press Conference

Jerome Powell is still wrapping up his comments as we go to press, but so far, he has done little to rock the proverbial boat. As the headlines below show, the Fed Chairman is loath to explicitly rule out additional rate hikes, but he’s also not saying they’re particularly likely either:

FULL EFFECTS OF TIGHTENING YET TO BE FELT
ECONOMY HAS EXPANDED WELL ABOVE EXPECTATIONS
NOMINAL WAGE GROWTH HAS SHOWN SOME SIGNS OF EASING
A FEW MONTHS OF GOOD INFLATION DATA 'ONLY THE BEGINNING' OF WHAT IT WILL TAKE
COULD WARRANT FURTHER INTEREST RATE HIKES
WE ARE NOT CONFIDENT POLICY IS SUFFICIENTLY RESTRICTIVE
WE ARE ATTENTIVE TO INCREASE IN LONGER TERM YIELDS
TIGHTER CONDITIONS WOULD NEED TO BE PERSISTENT
EVIDENCE OF ABOVE-POTENTIAL GDP COULD WARRANT HIKE
WE ARE NOT THINKING OR TALKING ABOUT RATE CUTS
THE QUESTION WE ARE ASKING IS, SHOULD WE HIKE MORE
STILL LIKELY THAT WE WILL NEED TO SEE SOME SLOWER GROWTH, SOFTENING IN LABOR MARKET TO RESTORE PRICE STABILITY

US Dollar Index Technical Analysis – DXY Daily Chart

Source: TradingView, StoneX

The US dollar dipped a quick 10 pips on the release of the mostly as-expected statement before recovering to essentially unchanged at the start of the press conference. As we go to press, the greenback is still consolidating just below the 107.00 level, with other major assets like US bonds, stock indices, and gold all showing little in the way of volatility either, with maybe a slight bias toward a more dovish reaction (stocks ticking up, yields edging lower, etc).

We’ll keep an eye out for any late bombshells from Mr. Powell, but so far, if his goal was to move markets as little as possible, he’s succeeding with flying colors. Watch for a potential break above resistance in the 107.20-25 zone to signal another potential leg higher in the US dollar index if Powell says anything hawkish.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.