Dollar Index recovers from dip as Fed holds rates with two votes for a hike

• Fed's decision to hold sends DXY briefly towards 101.90 before a rebound towards 102.00.
• September projections showed sixteen of 18 Fed officials anticipating another rate rise this year.
• Wednesday brings questions for Fed Chair Warsh, ahead of Thursday's US GDP and PCE releases.

At 3.75%-4.00%, the Fed's rate was unchanged on Wednesday, although two officials voted for an increase. December is now the final meeting this year at which the rise projected by most officials could be delivered. In the five-minute bar covering the statement, the Dollar Index slipped to just above 101.90 before recovering within the same bar. It did not reach the pre-decision session low near 101.85 and is now trading just below 102.00.

A quarter-point increase was favoured by Fed Governor Cook and Cleveland Fed President Hammack. MUFG had said that this type of dissent would reinforce expectations of a December rise. While describing inflation as still elevated, the statement offers no timetable for the next policy change, saying only that further information will help determine the policy stance. Following the announcement, the Dollar Index remained within its pre-decision trading range.

At least one further rate rise this year featured in the September projections of 16 of the Fed's 18 officials, with four forecasting two increases. Now that October has passed, December is the sole remaining meeting for either outcome. Delivering two rises at that meeting would require a half-point increase, a move the Fed last made in December 2022. Before the decision, traders priced the probability of a December increase at close to 80%, backing the outlook of the 16 rather than the four.

US data and central bank decisions take the spotlight

Thursday's releases of third-quarter Gross Domestic Product (GDP) and the September Personal Consumption Expenditures Price Index (PCE), both due at 12:30 GMT, will provide the first US data since the decision to hold with implications for December. Also on Thursday, the European Central Bank (ECB) announces its decision at 13:15 GMT, followed by the Bank of Japan (BoJ) on Friday. Those decisions concern the Euro and Yen, which together account for about 71% of the index.

At 18:30 GMT on Wednesday, Fed Chair Warsh begins his press conference. Speaking in Bangkok on 16 October, he said he does not pre-judge meetings. With two colleagues having already voted for a rise, his responses on December will bear directly on the expectations underpinning the Dollar Index.

Dollar Index remains below its opening level

After reaching a session high just above 102.15 in the first half of Wednesday, the index declined to its low. By the time of the statement, it had recouped about half of that fall. The dip and rebound within the decision bar still left it below its opening level for the day. The advance ahead of the announcement had taken intraday momentum into overbought territory.

DXY on the 5-minute chart