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The U.S. dollar rallied across the board on Thursday, reversing earlier declines after the Federal Reserve delivered an aggressive half-percentage-point interest rate cut. This marked the start of a monetary easing cycle aimed at maintaining low unemployment as inflation softens.
Chair Jerome Powell’s statement reiterated the central bank’s commitment to its dual mandate of employment and inflation.
Markets had largely anticipated this cut, with many already factoring in a 50 basis-point reduction based on prior media leaks. However, it surprised some economists, who were expecting a smaller, 25 basis-point move.
Despite these mixed expectations, traders responded to the actual decision with a ‘buy the rumour, sell the fact’ pattern, causing the dollar to claw back losses made earlier in the week.
By early Asian trading hours, the U.S. dollar index rose to 101.03, recovering from a one-year low in the previous session. The dollar also strengthened against the Japanese yen, gaining 0.58% to hit 143.12, while the euro slipped slightly, trading 0.04% lower at $1.1113 after hitting a three-week high the day before.
Picture: Dollar index trading at 100.910 as seen on the VT Markets app.
The U.S. dollar index (DXY) surged today, closing at 100.865, after hitting an intraday high of 101.155. The price action indicates that traders are reacting to expectations of further rate cuts from the Federal Reserve. Fed policymakers have hinted at another half-percentage-point reduction by the end of this year, with additional cuts anticipated through 2026.
Technically, we can observe a breakout from the 100.600 resistance level, a key pivot for the index in the short term. The 5, 10, and 30-period moving averages are all trending upwards, indicating bullish momentum. Additionally, the MACD has turned sharply positive, suggesting the possibility of further gains in the coming sessions.
Support remains firm at 100.200, near the previous day’s low, while the immediate resistance level lies just above 101.200. Although longer-term forecasts remain uncertain, the expectation of a soft landing for the U.S. economy has bolstered market sentiment, suggesting further dollar weakness in the future.
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The outlook for the dollar remains cautious. The Fed’s commitment to easing, coupled with improving global economic conditions, suggests potential for further declines next year.
Market participants will continue to assess data, focusing on how soft economic landings may weigh on the greenback.
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