Like stocks and bonds, the U.S. dollar saw some big swings after the Federal Reserve announced a quarter-point rate cut and as Chair Jerome Powell laid out the reasoning around the decision and discussed the path ahead. The ICE U.S. Dollar Index, a measure of the currency against a basket of six major rivals, stands slightly higher than where it was before the decision having touched its lowest intraday level since February 2022 on Wednesday afternoon.
Francesco Pesole, FX strategist at ING, said Powell’s characterization of the decision as a “risk-management” cut may have blunted the “dovish” message seen in the Fed’s dot-plot projection of expected future rate cuts. All in all, the outcome appears to have quelled worries about the Fed’s potential loss of independence, he said, at least for now.
“But regardless of the market’s hectic reaction, we read this as a negative event for the dollar. Despite Powell’s cautionary tone, the FOMC has clearly shifted to a dovish stance where it sees multiple cuts, and the focus is now firmly on the employment side of the mandate,” he wrote, referring to the Fed’s rate-setting Federal Open Market Committee.
