Fed Quick Analysis: Three hawkish moves to counter the cut – more dollar gains?

  • The "dot-plot" is pointing to no more cuts through 2020.
  • Despite the cut, the accompanying statement remains balanced.
  • The high number of dissents shows the Fed's independence.

The Federal Reserve has cut interest rates by 25 basis points as expected – follow all updates in the live coverage.

 Lower rates tend to weigh on the currency – but the dollar advanced. While this may be attributed to a typical "buy the rumor, sell the fact" phenomenon, there are more significant factors. 

1) No more cuts

The Federal Reserve's dot plot signals no additional cuts in 2019. There were 10 members placing their dots at current rates or higher, easily beating seven doves who see further reductions.

Moreover, the forecasts are pointing to no further rate cuts in 2020, with a closer 9:8 split. 

The Fed may change its mind, but is currently indicating that is done. The US interest rate is high in comparison to other developed economies – allowing the dollar more room to run. 

2) Divided Fed

The split in the dots has also been reflected in the voting pattern. No fewer than three members voted against the decision. Eric Rosengren, President of the Boston branch of the Federal Reserve, and his counterpart from Cleveland Esther George repeated their objection to the cut. On the other side of the fence, James Bullard of the Saint Louis Fed has voted for a double dose of cuts – 50 basis points.

These dissents show that members of the Fed are fiercely independent and speak their mind according to their opinions. For President Donald Trump – who immediately criticized the Fed's decision – this independence means FOMC members will not succumb to any pressures. The hawks will likely hold their ground and keep rates higher.

3) No change in the statement

The accompanying statement has included minor changes in comparison to the previous one in July. The Fed upgraded its description of the consumption and downgraded its wording about investment. The changes serve as an acknowledgment of recent developments rather than earth-shattering news.

That also implies that no new changes are projected and support the notion of a hawkish cut. 

Conclusion – more dollar gains?

The Fed's intentions to keep rates unchanged, as seen by the dot-plot, divisions, and the statement. Markets' disappointment has weighed on the dollar, but more gains for the greenback are likely as analysts digest all the developments. 

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.

Analysis feed

Latest Forex Analysis

Editors’ Picks

GBP/USD off 7-month highs, still firmer as Tories hold the lead

GBP/USD retraces from the new seven-month highs of 1.3180 but remains strongly bid, as weekend polls have reaffirmed a solid lead for PM Johnson's Conservatives. Cable dropped on Friday amid upbeat US data.


EUR/USD steadying above 1.1050 amid upbeat German export data

EUR/USD is trading above 1.1050, attempting a recovery after Germany reported an increase in exports in October. EUR/UDS dropped sharply on Friday amid upbeat US Non-Farm Payrolls and weak German industrial output. 


Forex Today: US-Sino trade tensions prevail, Boris closer to victory, EUR/USD licking its wounds

Trade talks: President Donald Trump has called on the World Bank to stop lending to China, a move that may aggravate tensions, with only six days to go until Washington is set to slap new tariffs on Beijing. Negotiations continue.

Read more

Gold: Sidelined after biggest daily decline in four weeks

Gold is lacking a clear directional bias in Asia, having registered its biggest single-day decline in four weeks on Friday. China's data may embolden President Trump to take more aggressive measures. 

Gold News

USD/JPY in search of a firm direction, stuck in a range above mid-108.00s

USD/JPY was seen oscillating in a narrow band and consolidated last week’s losses. US-China trade uncertainties continued underpinning the JPY’s safe-haven status. Investors now seemed reluctant ahead of the latest FOMC monetary policy update.


Forex Majors