US Dollar Analysis: Fed's Hawkish Hike Boosts Buck

US Dollar and Fed Takeaways

The Fed left interest rates unchanged as expected.
The median FOMC member expects one more rate hike this year and two cuts next year.
The US dollar is rallying in response to the “Hawkish Hold”

What was the Fed Interest Rate Decision?

The Federal Reserve’s Federal Open Market Committee (FOMC) left interest rates unchanged in the 5.25%-5.50% range as expected.

Fed Statement

There were no meaningful changes to the Fed’s monetary policy statement.

FOMC Summary of Economic Projections (SEP)

The Fed’s updated economic forecasts showed a median projection for 2023 growth of 2.1% (from 1% in June). Fed officials also lowered their unemployment forecast.

The infamous “Dot Plot” of future interest rate forecasts from the central bank showed 12 members expected one more interest rate hike this year while 7 expected to no change to interest rates.

More significantly, the median Fed member now expects “only” two rate cuts next year, down from four at the previous meeting.

Source: Federal Reserve

US Dollar Technical Analysis – DXY Daily Chart

Source: TradingView, StoneX

The US dollar caught a quick bid in reaction to the news as Fed Chairman Powell takes the stage for his press conference. He’s shown a tendency to “walk back” the statement throughout the year, but as it stands, the US Dollar Index (DXY) has reversed its losses on the dayafter touching a one-week low this morning.

Traders should keep an eye on medium-term support at 104.50 and resistance at 105.40 and 105.90.

Watch for future updates as Fed Chairman Powell’s press conference develops.

-- Written by Matt Weller, Global Head of Research

Follow Matt on Twitter: @MWellerFX

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