The United States dollar index (DXY) subsided nearly 1 percent to a nine-month low of. That was happened after the announcement of the results of the Fed's FOMC meeting earlier this morning.
Various other major currencies pressed the greenback further in the opening of the Asia-Australia session this morning (2/February). EUR/USD climbed above the 1.1000 threshold.
Meanwhile, USD/JPY was mired again in the 128.40s. AUD/USD and NZD/USD each cemented positions at a high record since June 2022.
The FOMC decided to raise the interest rate by 25 basis points, in line with market expectations. They also emphasized that interest rate hikes need to be carried out several more times in order to suppress the rate of inflation.
FOMC Meeting Result is Hawkish
The results of the FOMC meeting as a whole were hawkish in tone. Nevertheless, market participants highlighted the statement of Fed Chairman Jerome Powell in his press conference.
Powell reiterated his intention to keep interest rates high throughout 2023, as well as refuting market speculation about rate cuts this year. However, he also said that the process of disinflation has already begun.
Furthermore, the Fed will continue to make decisions based on the evaluation of economic conditions at each meeting. Disinflation is when the inflation rate starts to decrease.
The phenomenon is currently seen in the slowing increase in goods prices, post-pandemic supply chain normalization, and the decline in energy commodity prices.
Wall Street Stock is Soared
The analysts can now say for the first time that the process of disinflation has begun. Powell told reporters that this is a good thing.
His comments eroded the hawkish effect of the announcement of the FOMC meeting results. Wall Street's stock market soared based on a release, while the US dollar plummeted.
The market is pretty confident that Powell sees inflation going down, and it looks like he's pretty confident that it's going to continue. This was said by Edward Moya, a senior market analyst at OANDA.
They have two more inflation reports to evaluate ahead of the March meeting. If people see the price pressures continue to ease then they may fail to realize the Dot Plot (projections) and only need to announce one more rate hike.
June can be the Peak Moment
The situation above is a good news for risk assets, for the euro, and taking the dollar to the lowest level which people have seen in recent months.
Fed Funds Futures shows market participants now expect the Federal Reserve interest rate to peak at 4.89% as of June. Then it may fall to 4.39% as of December 2023.
The figures are further away from the last Dot Plot projection of the December 2022 FOMC meeting. For your information, that projection suggests the possibility of interest rates rising to more than 5.00%.
The U.S. dollar was also weighed down by the release of some very disappointing economic data at the start of the New York session yesterday. ADP Non-farm Employment Change data only increased by 106k.
EUR/USD is Corrected
The ADP non-farm employment change data was lower than the consensus estimate pegged at 178k. The ISM version of the Manufacturing PMI score also plummeted further from 48.4 to 47.4.
That was still happened even though economists only anticipated a decline to 48.0. The EUR/USD duo briefly touched a high of 1.1033 in Thursday's trading (2/February).
However, then this pair dropped to the range of 1.0900 after the announcement of the results of the European Central Bank (ECB) meeting. The reason is that the ECB added a dovish gesture in its interest rate hike announcement.
The ECB tonight raised interest rates in line with market expectations, by 50 basis points. They also affirmed the intention to continue to raise the rates significantly and Keep them at a fairly restrictive level.
