Hawkish Hold from Fed

The Dollar is rising again this morning on the back of the FOMC meeting yesterday. The Fed kept rates on hold, as expected, but was broadly hawkish in its messaging citing elevated inflation and strength in the US economy. The initial reaction to the meeting was dovish for USD, perhaps because there was no clear signal that the bank will hike rates in December. However, market pricing for a hike by year end is around 81%, unchanged after the meeting, reflecting hawkish expectations remain intact.

Data Now the Focus

While a stronger signal that a hike is coming would have likely driven fresh buying in USD, the greenback should remain supported near term with any incoming data strength likely to see December tightening pricing lift, helping the Dollar break higher in coming weeks as we move towards that meeting. Two policymakers dissented and voted in favour of a hike at this meeting, a further hawkish signal, which should encourage USD bulls. Looking ahead today, focus will now be on core PCE for September and advance Q3 GDP with any strength in these readings likely to fuel a continuation higher in USD today. Notably, GDP is forecast at 3.2%, a firm lift from the prior 2.2% reading. Given Warsh’s comments on the economy yesterday, confirmation of that increase should be firmly bullish for USD through the end of the week.

Technical Views

DXY

The index is holding above the 101.91 level for now, still supported by the bull channel lows. While this structure holds, focus is on a continuation higher with 103.20 the next target for bulls. If we break lower, 100.18 is the big structural level to watch below dynamic channel support.