Fed Sees Fewer Cuts

The US Dollar remains well bid today on the back of the September FOMC. While the Fed held rates unchanged, as expected, the guidance offered was firmly bullish. The majority of members agreed that further tightening would likely be appropriate this year. Additionally, the Fed is now expecting fewer rate cuts next year than previously expected. Stressing a ‘higher for longer’ outlook on rates, chairman Powell noted that the economic outlook had improved and, as such, rates would need to remain at elevated levels for longer in order to keep inflation down.

One More Hike Coming

The updated set of economic forecasts fed into this hawkish narrative neatly. GDP is now set to hit 2.1% this year, up more than double since the last projection in June. Similarly, 2024 GDP is forecast to hit 1.5%, up from the prior 1.1% forecast. However, with inflation forecast to cool, the growth figures reinforce the ‘higher for longer’ narrative more than pointing to the risk of continued tightening. Powell noted that the Fed expects one further hike this year to be the final increase of this tightening cycle though decline to signal whether it would come in November or December. For now, USD looks likely to remain well bid particularly on any fresh data strength.

Technical Views

DXY

The rally in the Dollar Index has seen the market breaking above the 104.95 level. This has been a major resistance point over the last year and while above here, the outlook turns firmly bullish. 107.57 will be the next level for bulls, ahead of bigger resistance at 109.18. To the downside, any move back below 104.95 will turn focus to support at 103.48 next.