That’s going to leave a mark
Overnight the Federal Reserve published its latest monetary policy decision. The relentless appreciation of the Dollar lately has been driven by the combined narratives of a soft landing, US economic exceptionalism, the forthcoming Trump presidency and the belief the Fed may have to moderate its easing cycle accordingly. The missing piece of the puzzle was confirmation from the Fed itself that it, much like the market, concurred that the previous path of monetary easing was now excessive.
The usual caution that surrounds central bank communications usually leaves the outlook sufficiently blurry to afford central bankers a margin of error. The Dollar, although strong moving into yesterday’s Fed decision, had not been bought excessively leaving scope for additional Dollar longs to build if the Fed exhibited a high degree of relative hawkishness. Despite following through with the projected 25 basis point cut last night, it was the combined impact of Chair Jay Powell’s press conference and the latest projections from FOMC policy members that drove the Dollar significantly higher overnight.
The 100-basis points of easing the Fed has delivered since September was largely discounted from the Dollar overnight. The change in projected cuts for 2025 from 1% at the September meeting to just 0.5% implied by the latest median forecast has driven the Dollar and treasury yields higher. The change to the projections has in turn been driven by higher inflation forecasts as measured by the Fed’s preferred core PCE deflator. EURUSD parity, although still a long way off, is an increasing reality once again.
Discussion and Analysis by Charles Porter
Click Here to Subscribe to the SGM-FX Newsletter
Related Insights
Daily Brief – A short lived short squeeze?
Charles Porter
Tue 9 Dec 2025
A short lived short squeeze? Sterling is undoubtedly benefitting from a short squeeze. Traders on net had increased positions that benefit from Sterling’s demise leading into the budget. Depending upon the participant’s persuasion, that could have meant gaining an outright short exposure to the currency or, in a more mild form, trimming any or all […]
Daily Brief – Sterling slides
Charles Porter
Thu 18 Dec 2025
Sterling slides Sterling took a leg lower ahead of the European open yesterday. Despite some tentative signs of recovery, GBP was still unable to claw back losses incurred during yesterday’s session. Before we cover the cause and implications of yesterday’s stumble amongst GBP crosses, let’s look at why the Pound was set up for a […]
Daily Brief – But does it mean anything for FX?
Charles Porter
Tue 6 Jan 2026
But does it mean anything for FX? The story of the week also therefore makes it the story of the year so far. The United States’ capture of Venezuelan President Maduro is the hot topic, but does it hold any material impact to markets? Well, there was certainly some significant moves in FX during yesterday’s […]
