In fact, before the rate cut was announced, market expectations for a 50 basis point rate cut were already very high. Therefore, when the rate cut was announced, the negative impact on the USD index would actually be limited. The real cause of the first wave of decline in the US dollar index was the changes in the dot plot and the Fed's easing statement.


In the statement, the Federal Reserve removed a phrase that it had emphasized over the past six months, which was that “a rate cut would not be appropriate until there is greater confidence that inflation will continue to move toward 2%. " At the same time, the Fed also stated its firm commitment to supporting maximum employment and returning inflation to its 2% target. These comments led J.P. Morgan's AI tool to rate today's Fed statement as completely dovish.
On the economic outlook, the Federal Reserve slightly lowered its GDP growth forecast for this year, while its GDP forecast for the next two years was unchanged. At the same time, the unemployment rate is expected to rise this year, while next year's PCE inflation expectations and the expected growth rate of core PCE inflation have also been lowered. These changes reflect the Federal Reserve's cautious assessment of economic conditions.
Compared to the dot plot in June this year, the Federal Reserve has significantly increased its expectations for interest rate cuts over the next three years. The dot plot projected median interest rate expectations for this year have fallen to 4.375% from 5.125% last time, and median interest rate expectations for next year and the year after have also been revised downward. This means that nearly 53% of the 19 Fed officials expect at least a 50 basis point rate cut this year.
However, things took a turn for the worse when Powell stepped forward to speak. He stressed that the Fed would make its decision at each meeting and would not be influenced by market expectations for rate cuts, nor would he consider any political factors or issues. He tried to dispel strong market expectations that “a sharp 50 basis point rate cut would become the new normal,” saying that the Fed would cut rates “as quickly or as slowly as the data would allow.” These hawkish comments caused the US dollar index to begin to reverse, not only narrowing the gap but also reclaiming its high of 101.
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