US Dollar Sells Off after the FOMC Decision

Yesterday, during the North American trading session, the US Dollar sold off after the Federal Open Market Committee (FOMC), as expected, announced that they would hold the main overnight benchmark rate at the current range of 1.00 to 1.25 percent. This was priced into the market well in advance of today’s policy meeting. Ahead of the FOMC announcement, Fed funds futures were showing a zero chance of a rate move by the FOMC. This was, what is called, an ‘off-cycle’ meeting. In other words, there was no new summary of economic projections (SEPs) to be released. There was also no press conference by Federal Reserve (Fed) Chair Janet Yellen.

The bad news for a dollar, already under pressure, the Fed’s July policy statement was not hawkish enough to stem the tide of the recent selloff. The Fed did comment that risks to the economic outlook are “roughly balanced.” Policy makers also noted that inflation is expected to stay “somewhat below” their two percent target in the near-term.

FOMC Keeps the Dollar on its Heels

The Fed policy bard also noted that the balance sheet unwind will begin “relatively soon.” This was a definitive change in language from “later this year” in the June policy statement. Yesterday’s policy statement was overly concerned with inflation which, in turn, sparked a selloff in the almighty buck.

After the Fed’s policy decision, the probable path of interest rate hikes remained little changed. Markets were pricing in a 60% chance of a 25 basis point rise in March 2018, before the announcement. After, futures were pricing in a 55% chance of a hike in March of 2018.