Not a single Fed official expected interest rates to rise next year, sending the US Dollar into freefall.

Participants in the FOMC meeting that ended in the early hours of this morning agreed with market speculation about cutting US interest rates next year. As a result, the US dollar exchange rate immediately weakened dramatically on all major pairs. The US Dollar Index (DXY) even tumbled to the 102.50s range at the start of the Asian session on Thursday (14/December).

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The FOMC meeting decided to keep the current interest rate at 5.25%-5.50%. However, 17 out of 19 Fed officials expect interest rates to decline by 2024.

The Dot Plot scheme -the FOMC meeting participants' projection of the Fed's interest rate- shows a median decline of 75 basis points throughout 2024. None of the Fed officials expect interest rates to rise in 2024.

Based on the description of the Dot Plot scheme, market participants considered the results of the FOMC meeting to be more dovish than previously thought. The reason is, that many parties thought the Fed would dismiss speculation of cutting interest rates until early next year.

CME Group data shows that market participants rushed to raise the odds from 49% to 72% for the Fed's interest rate cut scenario starting March 2024. In addition, the chance for a "Fed rate cut" in May was hoisted to 94%.

"The Fed turned dovish this afternoon, waving a red flag in front of a market that was expecting policy easing," said Karl Schamotta, chief market strategist at Corpay in Toronto.

In his post-meeting statement, Fed Chair Jerome Powell still maintained the option of another rate hike "if needed" because "the economy has surprised forecasters". However, he acknowledged that the rate hike cycle is likely complete. Powell also stated that the question now is when is the right time to start lowering interest rates.

The US dollar was brought to its knees in response to the news that circulated after the FOMC announcement. NZD/USD skyrocketed by over 1.00% and AUD/USD surged by over 0.8%, while USD/JPY fell by around 0.9%. EUR/USD and GBP/USD rallied on a more moderate scale.

Market participants are now turning their attention to the meeting announcements of three other major central banks that will be held separately today, namely the European Central Bank (ECB), the Bank of England (BoE), and the Swiss National Bank (SNB). All three have the potential to provide statements that have an explosive impact on various money market instruments.