US Dollar Index dropped the most in three weeks on Fed’s dovish hike.
Fed matches 0.25% rate hike expectations but cited easing inflation to please DXY bears.
Federal Reserve Chairman Powell’s readiness for rate cuts, if needed during late 2023 bolstered downside bias.
Softer US data hints at further weakness but ECB, BoE could entertain traders.
US Dollar Index (DXY) holds lower grounds near 100.90 as traders lick their wounds near the lowest levels since April 2022 during Thursday’s Asian session. In doing so, the greenback’s gauge versus the six major currencies also portray the market’s cautious mood ahead of the key central bank events and the US Nonfarm Payrolls (NFP).
DXY dropped the most in three weeks after the Federal Reserve’s (Fed) Monetary Policy Statement suggested that the inflation “has eased somewhat but remains elevated”. The same initially allowed the US Dollar bears to take entries even as the US central bank announced a 0.25% Fed rate hike while matching market’s forecasts.
The US Dollar Index slump, however, took place after the Fed Chair Powell’s press as the policy hawk surprised markets by saying, “We can declare that a deflationary process has begun.” The policymaker also accepting the needs for rate cuts during late 2023 if inflation comes down much faster. The policymaker also suggested that a couple more rate hikes are needed to reach it.
Also keeping the DXY bears hopeful were the mixed US data as ISM Manufacturing PMI dropped to the lowest levels since June 2020 while marking 47.4 figure for January, versus 48.0 expected and 48.4 prior. Further, the ADP Employment Change also declined to the one-year low with 106K be the latest figure compared to the 178K market forecasts and upwardly revised previous figure of 253K. On the contrary, JOLTS Job Openings rose to 11.012M in December, crossing 10.25M consensus and 10.44M prior readings.
Against this backdrop, Wall Street rallied and the US 10-year Treasury yields slumped the most in two weeks.
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