Article rewritten based on “USD Breaks Out After Powell Presser, EUR/USD, USD/JPY” by Matt Weller, originally published on Forex.com. Expanded and restructured to a length of at least 1000 words.
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Title: The U.S. Dollar Rallies Post-FOMC: What It Means for EUR/USD and USD/JPY
Following the conclusion of the June FOMC meeting, the U.S. dollar surged in response to Federal Reserve Chair Jerome Powell’s press conference. While the interest rate decision itself was largely in line with expectations, the Fed’s forward guidance and Powell’s careful messaging significantly impacted currency markets. Two of the most sensitive currency pairs, EUR/USD and USD/JPY, saw immediate and notable movements as traders realigned their expectations for interest rate policy through year-end.
This article explores the reasons behind the strength of the dollar, the implications for major currency pairs, and what traders can expect in the weeks to come. Content is sourced from an analysis by Matt Weller, originally published on Forex.com.
The Fed Meeting: Key Takeaways
On June 12, 2024, the U.S. Federal Reserve kept its benchmark interest rate unchanged at a range of 5.25% to 5.50%, as expected by most market participants. However, the market impact was not driven by the policy decision itself but rather by a combination of updated economic projections (the “dot plot”) and Powell’s remarks during the post-meeting press conference.
Key points from the meeting and Powell’s comments include:
– The median projection among Fed officials now anticipates only one 25-basis-point rate cut in 2024. This is a sharp decrease from the three rate cuts projected in March.
– Inflation remains sticky, particularly in key components that matter for monetary policy decisions.
– While recent inflation data shows modest progress, the Fed does not yet see the consistent improvement required to trigger rate cuts.
– Powell maintained a cautious yet vigilant tone, emphasizing data dependence as the Fed navigates future decisions.
– The FOMC continues to target a 2% inflation level before considering broader monetary policy easing.
These developments were interpreted by the market as a hawkish shift, leading to immediate strength in the U.S. dollar across the board.
Headline CPI Data vs. Fed’s Projection Shift
Interestingly, just hours before the FOMC decision, consumer price index (CPI) data for May came in softer than expected. This initially sent the dollar lower in early U.S. trade. Headline inflation held flat for the month, marking some progress in controlling price pressures.
However, the Fed’s marginal upward revisions to their economic outlook overshadowed the CPI developments. The central bank now expects:
– Slightly higher inflation going forward
– A stronger labor market than anticipated
– More robust real GDP growth
These upgrades—combined with the downward revision in projected rate cuts—prompted markets to reassess the likelihood and timing of monetary easing.
As a result, the interest rate-sensitive two-year Treasury yield rose and the dollar index (DXY) reversed its earlier losses, rallying strongly into the New York close.
EUR/USD Analysis: Bearish Momentum Reasserts
The euro weakened significantly against the dollar in response to Powell’s press conference. The EUR/USD pair, which had been positioning for a potential bullish breakout earlier in the week, fell sharply to retest key technical levels.
Near-Term EUR/USD Highlights:
– EUR/USD had been flirting with the 1.0800 zone—a resistance level that had repeatedly capped bullish advances in recent weeks.
– Following the CPI release earlier in the day, the pair surged briefly above 1.0850 as traders priced in an earlier Fed pivot.
– However, Powell’s press conference reversed this momentum and EUR/USD dropped by nearly 100 pips, briefly approaching the 1.0750 area.
Technical Indicators:
– The Relative Strength Index (RSI) failed to break above the
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