The US dollar index traded to the downside, within a range of almost 0.8 percent. This morning, it continues its fall, shedding another 0.1 percent. The Fed held rates steady and signaled that it has moved into a neutral stance on further interest rate adjustments, citing muted inflation and declining global growth as reasons to stay patient for the time being. Fed Chair Jay Powell said “…the case for raising rates has weakened somewhat. It’s going to depend entirely on the data. We are not making a judgment. We don't have a strong prior. We'll patiently wait and let the data clarify." Because of this, the Fed declared an outright end to the hiking cycle.
The difference this time is that Powell cited external factors. He mentioned that data suggested a slowdown in China and Europe remains a near-term risk. Uncertainty over the outcomes of U.S.-China trade negotiations and Britain's exit from the European Union, as well as the ultimate impact of January's U.S. government shutdown have yet to clear up.
The icing on the cake was when the Fed moved closer to endorsing a larger longer-run balance sheet. The Fed made a formal commitment to keep the abundant reserves operating framework it adopted after the financial crisis. It said rising reserves demand by financial institutions implies that its runoff program will be "completed sooner," leaving it with a, "…larger balance sheet than in previous estimates." The capital markets loved everything Powell said, especially the hold on rates for an extended period, and the “risk on” mode pushed risky assets to new highs in detriment of the US dollar. All the bets of a likely rate increase this year are off for now. The Euro, Aussie dollar and Canadian dollar are some of the currencies that are rallying after this news.