Dollar struggles to trim losses after Powell’s press conference

Following the Federal Open Market Committee’s (FOMC) modification of its interest rate estimates, which were more hawkish than anticipated, the US Dollar Index observed an upward trend on Wednesday. After the Consumer Price Index (CPI) fell to a low of 104.30 in May due to lower-than-expected data, the dollar recovered most of its losses and surged to 104.50. At the time of writing; the Dollar Index is trading at 104.685, down -54% down on the day.

After the Fed keeps interest rates unchanged at the 5.25%–5.50% range, the US currency strengthens. Members of the FOMC increased the value of their 2024 interest rate safeguards. Chair Powell’s focus on the health of the labour market highlights the Fed’s cautious stance.

The FOMC chose to keep interest rates unchanged at 5.25%–5.50% during its much-anticipated two-day meeting, which ended on Wednesday. The committee also decided to make revised, higher-than-expected upward revisions to the interest rate. The decision helped the USD, but it also somewhat dampened the euphoria for stocks and gold.

The Fed’s updated median forecast for the federal funds rate by the end of 2024 is 5.1%, indicating the Fed’s desire for more proof of declining inflation. The Fed revised upward its one-year interest rate outlook, increasing it from 3.9% to 4.1%. The long-term rate outlook increased to 2.8% from 2.6%, while the 2-year rate projection stayed same at 3.1%.

During the press conference, Chair Powell highlighted the robustness of the labour market and gave investors further confidence that the Fed is ready to modify policy in response to changing economic conditions.

The reevaluation of the rate path prediction suggests a longer timeline for possible rate decreases, even in spite of the decision to maintain the current rates. SMAs are recovered and bulls technically take charge again. The intra-day outlook indicators improved when the Fed adopted a more hawkish position, but they continued to be negative on the daily charts.

Additionally, the index recovered above the crucial 104.50 support level, strengthening the bullish view as it is currently trading above the 20, 100, and 200-day Simple Moving Averages (SMA).