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Video: Dollar Tumbles after Fed Backs Off Hikes, But How Far?

Video: Dollar Tumbles after Fed Backs Off Hikes, But How Far?

John Kicklighter, Chief Strategist

Talking Points:

• A hold by the Federal Reserve was expected, the drop in rate forecasts caught more market participants by surprise

• While a 50 bp reduction in the 2016 forecast for policy deflates USD premium, there remains a significant gap

• Risk trends are consolidating for a critical move, commodities are advancing and further rate decisions are ahead

See how retail traders are positioning in the majors using the FXCM SSI readings on DailyFX's sentiment page.

The Fed wouldn't disappoint for volatility, but has it triggered a lasting move from the Dollar and US capital markets? After deliberating for two days, the US central bank decided to hold rates in its 0.25 to 0.50 range as expected. Alone, that would have generated little friction in the markets; but there was much more to weigh in on. Through the policy statement, updated economic forecasts (SEP) and Chairwoman Janet Yellen's press conference; the most decisive update came through the rate projections. From December's 100bps of hikes expected in 2016, the forecast was cut to 50bps. That figure is derisive enough to force the Dollar to tumble, but it still maintains that the Fed expects to hike where all others are holding or pursuing easing programs. So, how far does the Dollar drop after its knee-jerk reaction? Meanwhile, risk trends have edged higher in the multi-week advance; and we are reaching a point where conviction will be found to continue higher or lost to a heavy correction. Other themes to watch include commodities attempting to squeeze further gains and a range of central bank rate decisions ahead that will be more than a little influenced by the majors of the past few weeks. We discuss where this big picture fundamentals meet market movement in today's Trading Video.

See how the DailyFX Analysts' 1Q forecasts for the Dollar, Euro, Pound, Equities and Gold is shaping up well as our favorite 2016 trading opportunities in the DailyFX Trading Guides page.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.