The Fed's interest rate announcement aligned with expectations, but market participants doubted the prospects. As a result, the US dollar weakened.

The US Dollar Index (DXY) tumbled to around 100.68 after the announcement of the Federal Open Market Committee (FOMC) meeting results this morning (July 27).

Several major currency pairs immediately surged, especially the AUD/USD, which briefly reached a five-day high. The announcement aligned with expectations, but market participants doubted The Fed's future interest rate prospects.

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The Federal Reserve announced a 25 basis points increase in interest rates, raising it from 5.25% to 5.50%, in line with previous market expectations. This marks the 11th interest rate hike in the last 12 FOMC meetings.

Federal Reserve Chairman Jerome Powell has indicated the possibility of further interest rate hikes. Additionally, he once again dismissed speculations regarding any rate cuts this year.

"We face uncertainty about the lagged effects of our tightening so far and about the extent of credit tightening from recent banking stresses," Powell said during a panel session at the conference in Washington.

"So today, our guidance is limited to identifying the factors we'll be monitoring as we assess the extent to which additional policy firming may be appropriate to return inflation to 2%," he added.

The overall statements from The Fed and Powell appear to be hawkish. However, the market reaction following the announcement indicates that traders and investors are unconvinced. Experts also believe that the Fed's interest rate hike will likely be the last one.

"Of course, the Fed did not close the door to further rate hikes, but it seems like in the Asian session, people took a firm conviction that this could be the last hike for the Fed," said Bank of Singapore currency strategist Moh Siong Sim.

Rajeev Sharma, managing director of fixed income at Key Private Bank, said, "In our opinion, the rate hiking cycle is done, and the Fed will now pause for the rest of the year. The latest market reaction also supports this thesis with yields dipping slightly across the front end of the yield curve."

Rival currencies took advantage of the situation to climb against the Greenback. AUD/USD and NZD/USD recorded the largest gains. However, EUR/USD and USD/JPY experienced very limited fluctuations.

The market awaits the announcement of the European Central Bank (ECB) policy meeting in the European session and the Bank of Japan (BoJ) meeting tomorrow morning.

"The ECB looks all but certain to hike the deposit rate by 25 bps... This should not surprise the market as it has been largely telegraphed," said Nadia Gharbi, senior economist at Pictet Wealth Management.

"The real debate is whether the ECB will hike again in September (and beyond)," she added.