US Dollar tumbles to lows near 89.40 on FOMC, trade

• The index retreats further on Thursday and is now testing lows near 89.40.
• USD hurt by Fed’s ‘dovish hike’ and worries over tariffs on China.
• US Initial Claims, flash PMIs next on tap later in the NA session.

The greenback, in terms of the US Dollar Index (DXY), is losing further ground on Thursday and is now challenging 4-week lows in the 89.40 region.

US Dollar weak post-FOMC, looks to trade

The index has accelerated the weekly leg lower after the Federal Reserve delivered a ‘dovish hike’ at its meeting on Wednesday, surprising those who were expecting a somewhat more aggressive tone from Chief Powell.

It is worth recalling that the FOMC raised rates by 25 bp yesterday, in line with the broad consensus. However, the Committee stuck to its previous forecast of three rate hikes this year, although it raised its projection for interest rates to 2.9% in 2019 and 3.4% in 2020.

Members of the Committee also expressed some doubts when comes to inflation, as they left unchanged their view on this year’s Core PCE at 1.9% and revised higher next year’s Core CPI to 2.1%. Furthermore, the Committee now sees the economy expanding 2.7% in 2018, more than initially forecasted.

DXY thus quickly abandoned the area at/above the psychological 90.00 milestone in the wake of the Fed’s decision, retreating to the 89.40 area so far, or multi-week lows. Adding to the ongoing weakness, President Trump is expected to announce tariffs on Chinese products worth around $60 billion, keeping alive the likelihood of a global trade war.

Data wise today in the US calendar, the usual weekly report on the labour market is due seconded by advanced PMIs measured by Markit.

US Dollar relevant levels

As of writing the index is losing 0.26% at 89.48 facing the next support at 89.40 (low Mar.22) seconded by 89.07 (low Jan.26) and then 88.25 (2018 low Feb.16). On the flip side, a break above 89.90 (10-day sma) would aim for 90.44 (high Mar.20) would and finally 90.57 (high Feb.8).