DXY drops to lowest since August, below trendline support on dovish Powell

The markets are shedding US dollars following the Federal Reserve interest rate decision and changes to the statement, but more-so on recent dovish comments made by Fed's Chairman Powell. DXY has dropped to a low of 97.08 from a high of 97.60.

DXY was trading a touch offered despite what appeared to be a hawkish outcome from the Fed statement. However, there was little uptake in markets until Powell's presser. Despite a bullish economic outlook in his opening statement, Powell has followed this up in a Q&A by stating that he would prefer to see a 'significant and persistent' move up in inflation before raising rates. This should not be a surprise yet the markets have piled into a short dollar position and taken the DXY to test a critical support area around 97 the figure. 

Key takeaways from FOMC statement and projections

• The market has priced in virtually no chance of rate move through February.
• IOER 1.55% vs 1.55% prior.
• Fed drops language about 'uncertainties about this outlook remain'.
• Vote was unanimous.
• "The Committee will continue to monitor the implications of incoming information for the economic outlook, including global developments and muted inflation pressures, as it assesses the appropriate path of the target range for the federal funds rate".
• No changes in the economic outlook paragraph.
• Says "the current stance of monetary policy is appropriate".
• Leaves forecasts for GDP and inflation unchanged, lowers unemployment.
• Median forecast is for one rate hike in 2021 and one in 2022.

Fed projections

Fed statement changes

DXY levels

The DXY index was treading on thin-ice into this meeting, testing the mid-2018 summer channel-support line and living dangerously below the 200-day moving average. The price has extended lower below both landmarks and risk is towards 95.20 on a clean break below the 23.6% Fibonacci retracement level of the Feb 2018 lows to YTD swing highs at 97 the figure.