Dollar Dips as Federal Reserve Project Lower Rates

Fed's Forecast Impact

The U.S dollar took a hit against the Euro and Yen on Wednesday. This happened as the Federal Reserve revealed new economic predictions indicating that hikes in U.S. interest rates could be halted, forecasting lower borrowing costs to take effect in 2024. An overwhelming 17 out of 19 Fed representatives see the policy rate dropping by the close of 2024.

Market's Prediction

A substantial plunge is projected from the prevailing 5.25%-5.50% range, as parallels suggest. Fed officials anticipate no higher rates by the end of the next year. The Federal Reserve opted to hold interest rates stable for a third consecutive meeting, a move that many observers had foreseen. Traders are currently forecasting a 72% chance of a rate cut by late March, a rise from 49% earlier in the day, and by May, they see a 94% chance of a decrease, as indicated by CME Group's FedWatch Tool.

The Currency Impact

The U.S. Dollar Index went down, with the Euro gaining and hitting its highest since the start of December. Simultaneously, the greenback dipped against the Japanese Yen, showing its lowest since early December. Some market watchers had predicted that Fed Chairman Jerome Powell could resist market pricing and downplay the likelihood of a rate cut for the first half of the year.

Future Monetary Policy

Although Chairman Powell signaled that the central bank had likely concluded its cycle of interest rate hikes, he did leave room for further action if necessary. The question of an appropriate time for rate cuts is progressively coming into focus, with possible moves forecasted for as soon as May’s meeting.

Global Central Bank Meetings

Now that the Fed meeting has completed, investors are shifting their focus to international central bank meetings scheduled for Thursday. The European Central Bank, Bank of England, Norges Bank, and Swiss National Bank are all in the lineup. Currency market participants are also keenly watching the performance of cryptocurrencies, particularly Bitcoin which saw a substantial rise.