Fed rekindles the Dollar rally hinting that December is still a chance for a hike

Volatility was elevated in the currency markets over the past 24 hours as traders were looking towards the Fed meeting to get a much clearer outlook for the US Dollar. We had explained in our reports the significance of this FOMC meeting and how it could affect the US currency and we’ve stated how we thought the press statement after the meeting would go.

However it seems that the Fed surprised us a little bit as it turns that the policymakers remain just a bit more bullish than we’d expect. We’ve said in our reports earlier in the week that we didn’t expect the Fed to raise interest rates until the end of the year, mostly concerned about the global growth slowdown. But the Fed rekindled hopes for an interest rate raise in December breathing new life into the Dollar.

The monetary policy committee appeared more bullish than the market expected, removed their line about the global slowdown concerns from their sentiment and mentioned that for a December hike a strong performance in the labor market and encouraging signs regarding inflation are needed. Long story short, they hinted that December is still an option and that they’d like to move forward with it should they have the chance.

As a result the US Dollar gained across the board as investors bought Dollars aggressively against the other currencies to better position themselves in case the Fed does pull the trigger in a month’s time. The Euro took a beating from the sudden Dollar strength and declined heavily to the 1.0900 area from where is trying to bounce at this time. The outlook for the Single currency pair is bearish though and with the ECB ready to ease further and the Fed steadily bullish we could see further losses towards the 1.0800 support floor.

The Cable was also hit from the sudden Dollar rally and the UK currency moved lower for the day. Its losses where more limited in comparison to the Euro as the Pound has a much more bullish outlook than the Euro but this recent downswing means that the current downtrend remains in play. The Cable is trading around the 1.5250 area this morning and further weakness could drive the Pound down to the 1.5200 support.