Breaking: US Dollar dives on dovish Fed - no hikes expected in 2019, significant downgrades

Yohay Elam FXStreet

The Federal Reserve's dot-plot implies no more hikes this year, with one hike in 2020. Nine members changed their opinions.

There were significant downward revisions to the economic outlook. The statement is quite dovish as well. They say the unemployment rate is done falling. Inflation will be lower according to the Fed. In addition, the Fed will stop shrinking the balance sheet at the end of the year. They will decrease the reduction in September.

This is a very dovish statement.

The US Dollar is falling sharply on the news from the Fed. EUR/USD is trading close to 1.1400, GBP/USD tops 1.3200, and USD/JPY is around 111.25.

Follow all the updates in our Fed live coverage

Here is the move on the EUR/USD chart:

The Fed was expected to leave its policy unchanged and to provide further details on its plans regarding interest rates. After raising interest rates in December, the Fed has signaled a patient approach to the next moves. Markets closely watch the forecasts for interest rates.

Fed Chair Jerome Powell recently said that the US economy is in a good place while noting headwinds from abroad.

Markets are also eyeing further details about the balance sheet reduction program, also known as Quantitative Tightening.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

AUD/USD bounces off multi-month low, nears 0.6900

AUD/USD edges higher toward 0.6900 in the Asian session on Wednesday, recovering some of the previous day’s losses to its lowest level since March as the US Dollar stalls the hot US CPI-inspired rally amid hopes of a US-Iran peace deal. Meanwhile, hawkish comments from FOMC members have almost confirmed another December rate hike, which favors USD bulls and should cap the Aussie.

USD/JPY remains capped below 159.00 amid looming intervention risks

USD/JPY struggles to build on the previous day’s strong gains to a near one-month top as intervention risk supports the Japanese Yen while hopes of a US-Iran peace deal cap the safe-haven US Dollar. That keeps the pair's upside limited below 159.00, for now.

Gold sticks to gains near $4,050 amid steeper Fed rate hike bets

Gold clings to recovery gains near $4,050 in the European session on Wednesday. However, upside seems limited amid sustained US Dollar demand. Tuesday's hot US inflation figures fuel expectations of a more aggressive policy tightening by the US Federal Reserve (Fed). This helps the Greenback preserve recent strong gains, despite hopes for US-Iran diplomacy.

Bitcoin at risk of sharp moves as leverage builds in derivatives markets

Bitcoin remains in a capped tone, trading around $73,800 after slipping to a low of $72,727 following the previous day’s hot US inflation figures. Institutional demand continues to weaken, with BTC spot Exchange Traded Funds recording a $95 million outflow on Tuesday, marking the fourth straight day of withdrawals. Traders should be cautious as a K33 Research report highlights that BTC is at risk of sharp moves as leverage builds in derivatives markets.

Hot CPI helps cement December Fed hike as Nvidia slumps

October CPI inflation landed yesterday and beat expectations across the board. Note that we only received the MM figures because of last year’s government shutdown. Headline MM came in at 0.4%, beating the 0.3% forecast, though below September's 0.6%. Core MM also came in at 0.3%, slightly higher than the 0.2% estimate and matching the prior month’s reading.

What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.