Dollar Index dips and recovers as the Fed holds with two hike votes

DXY dips to just above 101.90 on the Fed's hold and recovers to near 102.00.
Sixteen of 18 Fed officials projected another hike this year in September.
Fed Chair Warsh takes questions Wednesday, and US GDP and PCE come Thursday.

The Fed held at 3.75%-4.00% on Wednesday with two votes for a hike, which leaves December as the last meeting this year for the increase most officials projected. The Dollar Index dipped to just above 101.90 in the statement's five-minute bar and recovered inside it, short of the session low near 101.85 from before the decision. It's trading just under 102.00.

TMGM tahlili: Moliyaviy bozor yangiliklari, iqtisodiy kalendar va bozor tahlillari

Fed Governor Cook and Cleveland Fed President Hammack voted to raise by a quarter-point, the kind of dissent MUFG had said would firm up bets on a December hike. The statement says inflation remains elevated and gives no timing for the next move, only that more information will help set the policy stance. The Dollar Index came out of it inside the range it traded before the decision.

In September, 16 of the Fed's 18 officials projected at least one more hike this year, and four pencilled in two. With October gone, December is the only meeting left for either, and two hikes there would take a half-point move, last made by the Fed in December 2022. Traders had a December hike near 80% priced before the decision, a bet on the 16 rather than the four.

On the calendar

Third-quarter Gross Domestic Product (GDP) and the September Personal Consumption Expenditures Price Index (PCE) come out on Thursday at 12:30 GMT. They're the first US figures since the hold to bear on December. The European Central Bank (ECB) decides at 13:15 GMT the same day and the Bank of Japan (BoJ) on Friday, for the Euro and Yen that make up about 71% of the index.

Fed Chair Warsh's press conference starts at 18:30 GMT on Wednesday. In Bangkok on October 16 he said he doesn't pre-judge meetings, and with two of his colleagues already voting to hike, his answers on December go straight to the pricing behind the Dollar Index.

On the charts

The index set its session high just above 102.15 in the first half of Wednesday, then fell to the low and won back about half of that drop before the statement. The decision bar's dip and recovery left it below where it started the day. Intraday momentum reached overbought on the climb into the decision.

DXY 5-minute chart

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

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