Dollar Goes on the Defensive after the Fed Decision

The U.S. dollar was on the defensive Thursday during the Asian trade session. Overnight, the Federal Reserve kept rates as is but signaled that rate cuts were on the near horizon. The Fed is worried about growing global and domestic headwinds that could undermine local economic growth.

The Fed laid the groundwork to lowering its headline interest rate. Policymakers suggested that they could ease monetary policy as early as July. They are concerned over global trade tensions and weaker than expected inflation.

The dollar index, which measures the strength of the greenback in a basket against six other Forex majors, was flat during the Asian session at 97.188. The dollar index lost over half a percent during the North American trade session.

After President Donald Trump said that he had the authority to demote Fed Chair Jerome Powell, the benchmark USD/JPY was down 0.3 percent as traders fled to the safe haven yen. This market was at its lowest price level since January 4 at 107.72 yen

The Dollar Reacts to the FOMC Monetary Policy and Rate Decision

On Wednesday, the Federal Open Market Committee (FOMC), the monetary policy arm of the U.S. Federal Reserve Board (Fed), delivered their rate and monetary policy decision for June yesterday. The FOMC adjusted their forward guidance for monetary policy towards a more dovish stance. A growing number of Fed monetary policy makers are willing to show a more accommodative monetary policy stance, over the coming months.

After the monetary policy decision, the Summary of Economic Projections (SEP) showed that that there are now eight policy makers supporting a lower interest rate plot over the coming months. The SEP statement also showed that the Federal Reserve is now likely to abandon the wait and see approach towards monetary policy. The statement said that “many FOMC participants now see that the case for somewhat more accommodative policy has strengthened.”