DXY drops to lowest since August, below trendline support on dovish Powell
|- DXY drops to test critical 97 the figure and confluence support area on dovish Powell.
- Contrary to what was first presumed as a bullish outlook from Fed Chair Powell, USD sells off on dovish statement.
The markets are shedding US dollars following the Federal Reserve interest rate decision and changes to the statement, but more-so on recent dovish comments made by Fed's Chairman Powell. DXY has dropped to a low of 97.08 from a high of 97.60.
DXY was trading a touch offered despite what appeared to be a hawkish outcome from the Fed statement. However, there was little uptake in markets until Powell's presser. Despite a bullish economic outlook in his opening statement, Powell has followed this up in a Q&A by stating that he would prefer to see a 'significant and persistent' move up in inflation before raising rates. This should not be a surprise yet the markets have piled into a short dollar position and taken the DXY to test a critical support area around 97 the figure.
Key takeaways from FOMC statement and projections
- The market has priced in virtually no chance of rate move through February.
- IOER 1.55% vs 1.55% prior.
- Fed drops language about 'uncertainties about this outlook remain'.
- Vote was unanimous.
- "The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate".
- No changes in the economic outlook paragraph.
- Says "the current stance of monetary policy is appropriate".
- Leaves forecasts for GDP and inflation unchanged, lowers unemployment.
- Median forecast is for one rate hike in 2021 and one in 2022.
Fed statement changes
DXY levels
The DXY index was treading on thin-ice into this meeting, testing the mid-2018 summer channel-support line and living dangerously below the 200-day moving average. The price has extended lower below both landmarks and risk is towards 95.20 on a clean break below the 23.6% Fibonacci retracement level of the Feb 2018 lows to YTD swing highs at 97 the figure.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.