Federal Reserve Chair Jerome Powell dismissed the possibility of a rate hike but also refrained from indicating a clear path for a rate cut. Consequently, the US dollar weakened.

USD News

The US Dollar Index (DXY) slipped to the 105.70s in Thursday's Asian session following the announcement of the Federal Open Market Committee (FOMC) meeting results. The dollar also softened against most major currency pairs as the Federal Reserve emphasized its stance against raising interest rates despite persistent high inflation in the US.

The Federal Reserve held interest rates steady in the range of 5.25%-5.50% after its policy meeting yesterday. Additionally, the Fed announced plans to slow down the pace of its balance sheet reduction.

Expressing concern about recent high inflation levels, Federal Reserve Chair Jerome Powell said policymakers would need "more time than previously anticipated" to be confident that inflation would continue to decline toward the 2% target.

Powell left open the possibility of maintaining the current interest rate for a longer period. At the same time, he confirmed that the Fed would not raise interest rates further. According to him, the FOMC still believes that the current interest rate policy exerts sufficient pressure on economic activity to control inflation. Moreover, they are willing to wait as long as necessary to achieve the inflation target.

"Inflation is still too high," Powell said in a press conference after the conclusion of the Federal Open Market Committee's two-day policy meeting. "Further progress in bringing it down is not assured, and the path forward is uncertain."

Powell predicted that inflation would continue to decline throughout the rest of the year, but he expressed less confidence in that forecast than before. Given the current high level of uncertainty, he emphasized that the decision to cut interest rates or not would depend on data.

Stock traders welcomed Powell's firm stance against a rate hike, leading to a slight rise in the Dow Jones index. However, several other Wall Street stock indices remained under pressure due to the lack of signals for a rate cut. This uncertainty also weighed on the US dollar.

Powell's remarks on Wednesday were "notably less hawkish than many feared," according to analysts at Evercore ISI. "The basic message was that cuts have been delayed, not derailed."

The US dollar is currently weakening against most major currency pairs. EUR/USD and GBP/USD are hovering near yesterday's closing levels, at 1.0716 and 1.2537 respectively. AUD/USD climbed 0.3% since the morning opening to the 0.6540s. USD/CAD also slipped to 1.3720.

The greenback is only gaining against the Japanese yen and the Swiss franc, particularly in carry trades where traders sell low-yielding currencies to buy higher-yielding currencies. The Japanese and Swiss central banks are currently implementing very dovish policies — the BoJ maintains its interest rate near zero, while the SNB has begun cutting interest rates in March.