US Dollar Selling Quickens As Fed Leaves Policy Path Unchanged

Markets are currently digesting the latest Federal Reserve announcement that just crossed the wires. The FOMC statement provided little new information with the central bank deciding to leave the target Fed funds rate range unchanged at 0.00-0.25% and maintain the current pace of QE at $120-billion per month. This was widely expected by markets, which in turn, is resulting in an overall muted reaction by the US Dollar. Ten-year Treasury yields also changed little in response and continue to fluctuate around 165-basis points. That said, the broader DXY Index did come under pressure headed into the Fed decision with US Dollar weakness led by USD/CAD selling and EUR/USD buying.


USDCAD Price Chart US Dollar Forecast

Recent US Dollar weakness against the Loonie likely follows diverging monetary policy paths between the Federal Reserve and Bank of Canada. We outlined this bearish USD/CAD scenario in our US Dollar outlook published yesterday. Even in spite of robust data on the US economy since the last Fed meeting – like retail sales, nonfarm payrolls, and inflation – the central bank has adamantly communicated how policy is not going to change any time soon as the rise in inflation ‘largely reflects transitory factors.’ This could create a headache for Fed Chair Jerome Powell who will likely look to reinforce economic optimism while also emphasizing the importance of staying patient and waiting to normalize monetary policy until ‘further substantial progress’ is made toward reaching its goals.

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