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Dollar shrugs off Fed’s dovishness

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The US dollar came roaring back today, erasing all the losses it had from the very dovish Fed policy meeting.  The downgrade of interest rate increase expectations from two to none, combined with a softer economic outlook remains the main catalyst for falling yields on the Treasury curve and higher stock prices.  The dollar fell sharply after yesterday’s FOMC decision, but today’s reversal is surprising many.  The interest-rate differential argument for today’s rally is a valid one and most likely supporting the dollar here in the short-term.

All of the advance economies respective central banks have no tightening priced in this year, so we could see choppy conditions going forward.  Europe remains weak, but we could start to see German manufacturing data and business climate indicators rebound in the coming days.  If Europe does start to show signs of stabilizing, that could alleviate the pain of dollar bears.

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Ed Moya

Ed Moya

Contributing Author at OANDA
With more than 20 years’ trading experience, Ed Moya was a Senior Market Analyst with OANDA for the Americas from November 2018 to November 2023. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Prior to OANDA he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business, cheddar news, and CoinDesk TV. His views are trusted by the world’s most respected global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Seeking Alpha, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
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