Fed Chair Jerome Powell emphasized that he needs to see more supportive data to determine the appropriate rate cut timing.

The US Dollar strengthened in major pairs following the Fed's interest rate announcement at the end of the New York session (31/January). The US Dollar Index (DXY) had fallen to 102.94 because of disappointing ADP data at the start of the New York session, but Fed Chair Jerome Powell's statement lifted it to a high of 103.74.

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The results of the January Federal Open Market Committee (FOMC) meeting did not provide any major surprises. The US central bank did not change interest rates or give any clues about future rate hikes and cuts. However, Fed Chair Jerome Powell spoke more bluntly in his press conference.

Powell said that the Fed needs to see more supportive data to determine the appropriate timing of interest rate cuts. He believes inflation trends are weakening but still wants "greater conviction" to change interest rates. Furthermore, Powell confirmed that a rate cut in March is not the "base case" in the eyes of the central bank he leads.

Before the FOMC announcement, market data suggested a roughly 46% chance for a Fed rate cut scenario starting in March. Along with Powell's rebuttal, the odds fell to around 30%.

"Traders thought that with the shift in the bias towards neutral that the Fed would accompany this pivot with dovish language. But the Fed did not. If anything, the Fed added some hawkish language in the text." said Thierry Albert Wizman, Global FX and interest rate strategist at Macquarie New York, as quoted from Reuters.

These dynamics supported the US dollar exchange rate but have not been able to trigger a further rally. This is because market participants are now even more confident in the scenario of interest rate cuts starting in May.

Market players are also paying close attention to the ADP labour report released a few hours earlier. ADP data showed an increase in private payrolls of only 107k in December, less than the consensus estimate of 145k. This is a bad sign for Friday's Nonfarm Payroll data release.