Dollar Index recovers from a dip as Fed holds rates, with two votes for a hike

• DXY rebounds towards 102.00 after slipping just above 101.90 as the Fed keeps rates unchanged.
• September projections showed another rate hike this year from sixteen of 18 Fed officials.
• Wednesday brings questions for Fed Chair Warsh, ahead of Thursday's US GDP and PCE releases.

The Dollar Index is trading just below 102.00 after briefly slipping to just above 101.90 in the five-minute bar containing Wednesday's Fed statement. It recovered within that bar without reaching the pre-decision session low near 101.85. The Fed left rates at 3.75%-4.00%, with two officials voting for an increase, making December the year's final opportunity to deliver the hike projected by most officials.

A quarter-point increase was favoured by Fed Governor Cook and Cleveland Fed President Hammack. MUFG had said dissent of this kind would reinforce expectations of a December hike. While describing inflation as still elevated, the statement offered no timetable for the next move, saying only that further information would help determine the policy stance. Following the announcement, the Dollar Index remained within its pre-decision trading range.

December is now the only meeting remaining after October at which the Fed can act on its September projections: 16 of its 18 officials anticipated at least one further hike this year, while four expected two. Delivering two hikes at that meeting would require a half-point increase, a move the Fed last made in December 2022. Ahead of the decision, traders had priced in a near 80% probability of a December hike, aligning with the 16 officials rather than the four.

What is next on the calendar?

The first US data following the rate hold with implications for December arrive on Thursday at 12:30 GMT: third-quarter Gross Domestic Product (GDP) and September's Personal Consumption Expenditures Price Index (PCE). Also in focus are decisions by the European Central Bank (ECB) at 13:15 GMT that day and the Bank of Japan (BoJ) on Friday. Together, the Euro and Yen account for about 71% of the index.

With two colleagues already favouring a hike, Fed Chair Warsh's responses on December will directly inform the expectations underpinning the Dollar Index. His press conference begins on Wednesday at 18:30 GMT. Speaking in Bangkok on 16 October, he said he does not pre-judge meetings.

What do the charts indicate?

After reaching a session high just above 102.15 in Wednesday's first half, the index retreated to its low, then recovered about half the decline ahead of the statement. The dip and rebound within the decision bar still left it below its opening level for the day. As it climbed into the announcement, intraday momentum entered overbought territory.

DXY chart: 5-minute timeframe