Federal Reserve building in Washington DC. Image source: Andrei Medvedev © 123RF.com
This Wednesday the US Federal Reserve announced its decision to maintain the interest rate unchanged at the previous level of 2.50% and as a result of that, the US dollar index has subsequently gained 0.32% in the next two trading days.
In the following statement by the Federal Open Monetary Committee, the ultimate arrangement to keep the interest rate at 2.50% was defended by arguing that:
“In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate […]”
This statement substantiates the central bank’s newly adopted stance, that was initiated after the FED’s March meeting, of cautionary monetary policy, which was initially outlined here. Yet, as we had forecasted in our recurrent weekly expectations article from this Monday, the FED opened up and upheld the possibility for future rate hikes. In the set article it was anticipated that:
“this time the FED has more incentives to comment on possible future hikes in the case of a robust NFP report this Friday. If they do, then the US dollar can be expected to gain strength."
This argument seems to be in line with the FED’s commitment to remain patient, as it deliberates on possible future adjustments to the rate. Furthermore, the US dollar indeed gained strength after the release of the FOMC statement, despite the initial short sell, that was mostly resulted from the lack of any substantial changes to the prevalent funds rate.
Image source: Trendsharks ©, created with TradingView.com
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