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Home » Fundamental Analysis » Meteoric Selloff of the Dollar Post-FOMC

Meteoric Selloff of the Dollar Post-FOMC

Posted by FXTimes in Fundamental Analysis - March 18th, 2015 10:48 pm GMT

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The US dollar plunged nearly 2 percent against a trade-weighted basket of currencies on Wednesday, as the Federal Reserve opened the door to a June rate hike, but also indicated it would go slow in normalizing monetary policy.

These mixed signals resulted in a sharp selloff of the US dollar, which declined across the board in the late-afternoon session. The dollar index fell 1.8 percent to 97.83, its lowest level since March 9.

 

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Below is a sample of some of the carnage that ensued following the Federal Open Market Committee (FOMC) rate announcement.

  • EURUSD advanced 236 pips to 1.0829 after reaching an intraday high of 1.1016.
  • USDJPY declined 1 percent to 1.2019 after bottoming out at 1.1939.
  • GBPUSD advanced 189 pips to 1.4938, easing from an intraday high of 1.5162.
  • USDCAD declined 203 pips to 1.2489, having reached a daily low of 1.2452.
  • USDCHF declined 214 pips 0.9846, falling below parity for the first time in more than a week.
  • USDSEK declined nearly 1 percent to 8.6092.

The Federal Reserve removed the word “patient” from its rate decision on Wednesday, but downgraded its GDP and inflation forecasts, signalling policymakers are in no rush to bring interest rates back to normal levels. Fed officials also decreased their median estimate for the federal funds rate to 0.625 percent for the end of the year from the previous estimate of 1.125 percent.

The Forex market will probably stabilize in the coming days as investors re-evaluate their positions. Although US interest rates are expected to rise very gradually, the Federal Reserve is the only major central bank seriously considering normalizing policy. According to several analysts, the dollar index is fairly valued at 100.

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