The US dollar continued falling despite a more hawkish message by Powell yesterday when the market was expecting more dovishness. The Fed continued to include in its statement that further "gradual" rate hikes would be appropriate. The initial spike of the Greenback lasted only one hour against all its crosses immediately after the FOMC release; for instance, the EUR/USD pair fell from 1.1431 to 1.1364 (stronger US dollar). However, the US dollar resumed its downtrend, in the case of the EUR/USD, it touched an intraday high of 1.1486, a new 43-day high in the overnight trading session.
In yesterday’s Powell speech, the Fed was willing to be more cautious and patient given global risks and more controlled inflation. The Fed will probably hike its rate two more times next year because financial conditions are tighter and the Fed has become more data dependent. Powell also mentioned that a balance sheet reduction would continue rapidly. In general, fundamental support for the US dollar is starting to evaporate and monetary policies of the major central banks around the world are beginning to converge. This might not be supportive of a strong US dollar in 2019. It was also interesting to find out that the Fed shrugged off all the political pressure (namely Trump) and all the noise around the US equity market correction. The Greenback is falling this morning along with the global equity markets including the US, Europe, and Asia, as market participants reacted grimly to the Fed’s interest rate increase and its guidance.