Interest Rates Down, Dollar Up!

The dollar’s upward movement following FOMC decisions can be explained by:

1. Market Expectations (priced in): If the rate cut was already fully priced in by the market before the announcement (so-called “buy the rumor, sell the news”), the USD could rise as investors take profits after earlier speculation.

2. Short Selling at Higher Levels: After a sharp rise in the dollar, some investors might opt for short selling, taking advantage of the higher price levels and anticipating that the dollar will weaken in the long term in line with the logic of rate cuts (reduced attractiveness of USD-denominated assets).

This kind of movement could look as follows:

• Before the decision: Large capital flows into the dollar, expecting a hawkish statement or an element of surprise.

• After the decision: These assets are sold at the peak, with simultaneous opening of short positions.

Other Possible Explanations for USD Strength:

3. Hawkish Statement: If the FOMC hinted at a quick end to the rate-cutting cycle or gave a positive assessment of the U.S. economic outlook, the market might interpret this as a signal that the dollar will remain strong.

4. Technical Short Squeeze: If there were many short positions on the dollar before the decision, a sharp rise in the price could trigger the closing of these positions, fueling further gains (a so-called “short squeeze”).

Conclusion:

The dollar’s movement after an FOMC decision isn’t always intuitive, as it’s influenced by fundamental factors, market sentiment, and short-term speculation.

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