A Fed Hold and Lowered Rate Forecast Sends USD Careening

Talking Points:

• A hold on the benchmark rate was heavily anticipated by the market

• The outlook for inflation cooled while the view for unemployment continued to shift lower

• Cutting the 2016 rate forecast (and the outlook for subsequent years) led the Dollar to a sharp decline

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Watch the recording of John Kicklighter's coverage of the FX market's reaction to the FOMC decision. Following the dramatic action after the ECB's decision to escalate its easing efforts, the Fed deliberation on its own policy was set for a remarkable impact. The Dollar reaction did not disappoint. Cutting through the hold on rates, the cautious tone in the monetary policy statement and the adjustments to economic forecasts (all anticipated); the focus was affixed to the outlook for the pace of future rate hikes. The downgrade was short of what the market may be pricing in the futures and swaps; but it was larger than what the Dollar (and I) had anticipated. The result was a USDollar decline. But the follow through on this development is dubious. The important central bank decision and the market's reaction was broken down in this webinar.

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