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 weaker Dollar: Trump vs. Powell
Charles Porter
Thu 26 Jun 2025
A weaker Dollar: Trump vs. Powell The Dollar continued to lose ground yesterday as the truce between Israel and Iran appeared to continue to hold. There has been a noticeable return to focus upon macro and monetary influences in major currency pairs. Yesterday, Fed Chair Jay Powell provided his semi-annual monetary policy report before the […]
Daily Brief – Big Girls Don’t Cry
Charles Porter
Thu 3 Jul 2025
Big Girls Don’t Cry A bond market tantrum and one of the sharpest one day sell offs in Sterling for several years appear to have been catalysed by the Chancellor’s appearance in PMQs yesterday. First: the back story. This Labour government has faced some embarrassment in recent weeks trying to get its welfare bill through […]
Daily Brief – Next level
Charles Porter
Tue 1 Jul 2025
Next level EURUSD has managed a relatively smooth ascent to its current levels, around 1.18. That is despite significant resistance levels, most notably around 1.17. A large collection of option strike prices gathered around this key level and the price history of the pair shows us its significance. Sustained closes above this level since last […]
