US Dollar Strength Might Fade as Powell Downplays Fed Dot Plot

US DOLLAR, FED DECISION, POWELL PRESS CONFERENCE – TALKING POINTS

• US Dollar strength in response to the latest FOMC decision could start to sputter
• Fed Chair Powell is softening up dot plot projections that upgraded rate liftoff
• The Federal Reserve still wants to see ‘substantial further progress’ toward goals

The US Dollar and Treasury yields are trading sharply higher following the latest Fed announcement. US Dollar strength looked largely fueled by Fed officials upgrading their dot plot projections, which now show two interest rate hikes by the end of 2023. This overshadowed the lack of change to language in the press statement. Specifically, there was no explicit mention of tapering asset purchases with the central bank still seeking to make substantial further progress toward policy goals before slowing the pace of its $120-billion/month QE program.

FED CHAIR POWELL DOWNPLAYS THREAT OF TAPERING, DOT PLOT PROJECTIONS

Not to mention, Fed Chair Powell is also downplaying dot plot projections during his follow-up press conference. Powell stated how FOMC dots ‘need to be taken with a grain of salt,’ adding that the dot plot is ‘not a great forecaster of future rate moves.’ The Federal Reserve head also echoed how the central bank is still ‘a ways away’ from making substantial further progress toward its dual mandate. This dovish rhetoric from Powell contrasts the market’s hawkish read of the press statement. As such, there could be potential for the US Dollar and Treasury bond yields to pare their spikes higher while volatility normalizes.

— Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight