USD: FOMC holds but Dollar fails to strengthen – MUFG

The US Dollar has not been able to strengthen further following the FOMC meeting, where the fed funds rate was kept unchanged. The meeting highlighted a change in the labor market description, indicating signs of stabilization. The overall tone from Fed Chair Powell was positive regarding growth, but there are still risks for future rate cuts, notes Derek Halpenny, Head of Research at MUFG.

FOMC meeting insights and dollar outlook

"The main take-away from the meeting was the change in description of the labour market. The opening paragraph of the statement last night contained the description that 'Jobs gains have remained low, and the unemployment rate has shown some signs of stabilization'."

"But the overall tone on growth was positive and Powell doesn’t appear to believe the monetary stance is overly restrictive stating that it was 'at the higher end of a plausible range for the neutral rate' adding that the strength in GDP growth was not indicative of the monetary stance being 'significantly restrictive'."

"While rate expectations have not been a catalyst for dollar selling in January the positioning now in rates should help limit the risk of a rebound in the dollar if/when rate expectations become a bigger influence on FX going forward."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)