Fed Quick Analysis: Buying opportunity on USD? Three reasons why the Fed was not dovish enough

  • The Federal Reserve has left rates unchanged but downgraded its language. 
  • There are three reasons why the USD retreated on the news.
  • But there are also three factors that could send it back up.

The Federal Reserve has left the interest rates unchanged as broadly expected but has also made significant changes that open the door to a rate cut. But is it enough to satisfy markets?

Follow all the action in our live Fed coverage

Let's begin by explaining the three reasons why the dollar dipped and then describe why it is not dovish enough.

1) Patience: The Fed has scrapped the word "patience" that it has been repeating since the wake of 2019. The central bank is no longer sitting on the fence but will "closely monitor" developments, thus opening the door to rate cuts.

2) Growing uncertainties: The Fed has placed global worries on the front page and not only in its meeting minutes. The wording shows that officials are genuinely worried.

3) Dovish dissenter: James Bullard, President of the Saint Louis Fed, has voted for a rate cut. Dissents are not common under Powell and Bullard's coming out points to growing pressures for reducing rates.

However, there are three developments that make the development not that dovish:

Three reasons for a greenback comeback

1) Dot plot: The Fed's projections do not point to a rate cut in 2019. This significantly contradicts market expectations for two rate cuts in 2019. The Washington-based institution may eventually change the dot-plot and cut rates – but we're not there yet.

2) Inflation: The Fed has maintained the wording that "survey-based measures of longer-term inflation expectations are little changed." They seem unmoved by the slowdown in the consumer price index. Inflation is one of the Fed's mandates.

3) Strong labor market: The bank notes that "the labor market remains strong" shrugging off the unimpressive job gains recorded in May and seeing a brighter picture. They add that "Job gains have been solid." Employment is the Fed's second mandate and once again – this is far from being sufficient for a rate cut.

Follow all the action in our live Fed coverage

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

Latest Forex Analysis

Editors’ Picks

EUR/USD modestly up for the day, still below 1.0900

The EUR/USD pair is trading marginally higher at the end of Wednesday, as panic eased. Nevertheless, concerns about the coronavirus possible effects on economic growth keep investors in cautious mode.


AUD/USD at fresh multi-year lows and at risk of falling further

The Aussie remains among the weakest currencies in the FX sphere, amid Australian economic tights with China. AUD/USD trading at an over one-decade low in the 0.6550 price zone.


Crypto Today: Bitcoin bears force devastating break of $9000

BTC/USD is currently trading at $8740 (-6.50%), the bears have smashed the big $9000 mark to the downside. 

Read more

Gold surrenders early gains, refreshes session low around $1630 region

Gold surrendered its early modest gains and has now drifted into the negative territory, refreshing session lows around the $1634-335 region.

Gold News

FXStreet launches Real-Time Trading Signals

FXStreet Signals offers access to explanatory live webinars, real-time notifications when signals are triggered and exclusive membership to the company’s Telegram group, where users get direct guidance by our analysts and get room to discuss and interact.

More info

Forex Majors