The US dollar managed to strengthen late Wednesday, but it quickly erased all the gains on Thursday, pushing the EURUSD pair toward 1.1750.
The Federal Reserve (Fed) said it would soon be ready to reduce its monthly asset purchases – in a process known as tapering. Although the exact month of tapering was not announced, the central bank noted that tapering might soon be warranted, implying a possible start in November or December.
The Fed also said the tapering process should end in the middle of July 2025, so it will be a relatively quick one. It seems the governors overlook the recent weakness in the labor market data and the latest plunge in equity markets. Below is the predicted scheme of tapering.
Additionally, the so-called dot plot was much more hawkish than anticipated – nine out of eighteen Federal Open Market Committee (FOMC) participants now want to raise rates in 2025. The long-term rate expectations have also increased, indicating the central bank is becoming ready (although it is still far away) to tighten monetary policy.
Regarding inflation, the Bank of America noted, “the Fed has become more concerned about persistent price pressures, although the critical test will be long-run inflation expectations, which remain well-anchored. Monitoring the supply side developments will be critical: the supply side remains constrained for both goods and labor.”
It looks like inflation is not temporary, but it will become more persistent. In that scenario, the Fed will be required to tighten monetary policy quicker than it currently plans.
Nevertheless, despite all the hawkish data in the latest FOMC statement, the USD failed to capitalize on it, and is moving lower on Thursday. As a result, the dollar index looks ready to test its 50-day moving average near 92.75 USD, and if that support does not hold, we could see a decline toward the short-term uptrend line near 92.20.
Alternatively, if the bulls reappear, the resistance remains at the previous highs near 93.50. The index needs to rise above it to confirm the medium-term uptrend, with a possible leg higher toward 95.00.
Top 4 Brokers
