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US Dollar Dives After March FOMC Meeting Reveals Dovish Fed

US Dollar Dives After March FOMC Meeting Reveals Dovish Fed

Peter Hanks, Strategist

FOMC Meeting Talking Points:

  • FOMC officials expectedly delivered no change to the 2.25% - 2.50% interest rate range
  • The US Dollar traded lower as market participants digested the monetary policy impact from the new Summary of Economic Projections
  • See the full DailyFX Webinar Calendar for upcoming strategy sessions following the FOMC meeting

US Dollar Dives After March FOMC Meeting Reveals Dovish Fed

The Federal Open Market Committee offered no change to the 2.25% - 2.50% interest rate range at March’s policy meeting, in line with market expectations. Despite the unsurprising rate announcement, the US Dollar (reflected by the DXY Dollar Basket) traded lower following a firmly dovish shift from the central bank.

Accompanied by the Fed’s decision to maintain the current rate range was new language in the FOMC’s March statement. The revisions reflect lower growth and inflation forecasts for the US economy with expected 2019 GDP dropping from 2.3% to 2.1%. Lowered forecasts were within market expectations, but the degree to which the Fed cut the economic outlook may have been more pessimistic than anticipated which likely contributed to the subsequent price action.

View our Economic Calendar for events scheduled later in the week like New Zealand GDP and a Bank of England rate decision.

In the statement, the Federal Reserve signaled no hikes in the interest rate range in 2019, with one hike likely in 2020. Further, FOMC officials announced the bank will taper balance-sheet roll off and may halt the process in late September. The decision to pause on interest rate hikes marks a concrete development in the central bank's policy and solidifies the bank's dovish stance. In response the US Dollar added to recent losses from days prior, plunging to 96.00 from 96.45 immediately after the announcement crossed the wires.

US Dollar Basket Price Chart (DXY): 1-Minute Time Frame (March 20) (Chart 1)

us dollar price chart fomc

US Dollar Basket Price Chart (DXY): Daily Time Frame (January 2018 - March 2019) (Chart 2)

us dollar price chart fed decision

On the broader Dollar chart, price action following the Fed’s policy decision sent the index through support from April around 96.25. Following the report’s release, Federal Reserve Chairman Jerome Powell will offer further insight into the Fed’s stance at a post-decision press conference. Volatility in USD crosses and US equity indices may continue as clarifying statements are made or unexpected comments are offered. In the meantime, get up to speed on themes to watch during Chairman Powell’s conference.

Check back for updates as the story develops…

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

Read more: Dow Jones, S&P 500, FTSE 100 and DAX 30 Fundamental Forecast

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