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 – Just in time?
Charles Porter
Tue 11 Nov 2025
Just in time? As we wrote yesterday, the latest US government shut down has become the longest in history. The impact upon sentiment and consumption is sure to have been significant but it is too early to identify from the data just how much damage was done. Thanks to the eight democrats who have broken […]
Daily Brief – One in three
Charles Porter
Tue 4 Nov 2025
One in three Until recently, the market had held the probability of a rate cut at the Bank of England’s November meeting at near zero. Above-target inflation and insufficient evidence of faltering economic growth alone suggested the BoE would continue to adopt a wait and see approach. Combine that with the uncertainty of the UK […]
Daily Brief – Grinding lower
Charles Porter
Thu 6 Nov 2025
Grinding lower The key currency pairs of GBPUSD and EURUSD continue their slow but consistent grind lower. This story is not just one of dollar strength but also a rotation away from GBP and EUR, in favour of safe havens. Under performance in global equity markets continues to be a factor behind the market’s general […]
