Market Data 
- The US Dollar softens from its two-year high after the Fed signaled fewer interest-rate cuts ahead.
- The Fed’s dot plot revealed FOMC members have concerns on inflation throughout 2025.
- The US Dollar Index (DXY) is trading around 108.00, in search of first support.
The US Dollar (USD)is under pressure of some profit taking on Thursday, with the DXY Index hovering at around 108.00, after its sizable upward move on Wednesday on the back of the Federal Reserve (Fed) interest-rate decision. The rate cut by 25 basis points, lowering the policy rate to the 4.50%-4.75% range, was already long priced in. Markets got spooked by the retreat in the number of projected rate cuts for 2025 from four to only two.
It appears that members of the Federal Open Market Committee (FOMC) are concerned about the continuation of the disinflationary path. The recent commitments from President-elect Donald Trump are clearly alive in the minds of the Federal Reserve members. Prospects of fewer rate cuts in 2025 widen the rate differential even more between the US and other countries in favor of a stronger US Dollar.
The US economic calendar is further winding down towards the Christmas lull. The third reading of the US Gross Domestic Product for the third quarter did not bring much changes. Rather the Philadelphia Fed Manufacturing Survey for December saw a big drop and fell deeper into contraction.
Daily digest market movers: Philadelphia Fed Manufacturing sinking
- A government shutdown is looming in the US. Both the House of Representatives and the Senate are rushing to pass a stopgap bill. Meanwhile, President-elect Donald Trump already said he opposed the bill, according to Fox News.
- A chunky batch of data got released this Thursday:
- Weekly Jobless Claims:
- Initial Jobless Claimscame in at 220,000 for the week ending December 6 from 242,000 the week before and below the 230,000 estimate.
- The third reading for the Gross Domestic Product for the third quarter:.
- The annualized GDP grew by 3.1%, beating the 2.8% estimate and previous reading, headline Personal Consumption Expenditures (PCE) Price Index unchanged at 1.5%, core PCE stable at 2.1%, and GDP Price index also unchanged at 1.9%.
- The Philadelphia Fed Manufacturing Survey for December came in as a big miss on estimates. A firm declineto -16.4, missing the 3 estimate and against the previous -5.5.
- Weekly Jobless Claims:
- At 16:00 GMT, the Kansas Fed Manufacturing Activity for December will be issued. The previous reading showed a contraction at -4.
- Equities in Europe are down over more than 1% for this Thurdsay while US Futures are gearing up for a positive open and are shrugging off the Fed’s hawkish message.
- The CME FedWatch Tool for the first Fed meeting of 2025 on January 29 sees a 91.4% chance for a stable policy rate against a small 8.6% chance for a 25 basis points rate cut.
- The US 10-year benchmark rate trades at 4.54%, a fresh seven-month high.
US Dollar Index Technical Analysis: Winding down
The US Dollar Index (DXY) appears to have played its last hand for 2024. After the Fed rate decision and the release of the dot plot, the DXY increased to a fresh two-year high at 108.28 to later suffer from profit taking. The expectation is that the DXY might correct further until 107.35 or even 106.52 before finding solid support.
A fresh set of levels need to be defined to the upside. The first up is 109.29, which was the peak of July 14 2022 and has a good track record as a pivotal level. Once that level is surpassed, the 110.00 round level comes into play.
Under the pressure of some profit taking, the DXY could now look for some solid support. The first downside barrier comes in at 107.35, which has now turned from resistance into support. The second level that might be able to halt any selling pressure comes in at 106.52. From there, even 105.53 could come under consideration while the 55-day Simple Moving Average (SMA) at 105.23 is making its way up to that level.
US Dollar Index: Daily Chart
Dot Plot FAQs
The “Dot Plot” is the popular name of the interest-rate projections by the Federal Open Market Committee (FOMC) of the US Federal Reserve (Fed), which implements monetary policy. These are published in the Summary of Economic Projections, a report in which FOMC members also release their individual projections on economic growth, the unemployment rate and inflation for the current year and the next few ones. The document consists of a chart plotting interest-rate projections, with each FOMC member’s forecast represented by a dot. The Fed also adds a table summarizing the range of forecasts and the median for each indicator. This makes it easier for market participants to see how policymakers expect the US economy to perform in the near, medium and long term.
The US Federal Reserve publishes the “Dot Plot” once every other meeting, or in four of the eight yearly scheduled meetings. The Summary of Economic Projections report is published along with the monetary policy decision.
The “Dot Plot” gives a comprehensive insight into the expectations from Federal Reserve (Fed) policymakers. As projections reflect each official’s projection for interest rates at the end of each year, it is considered a key forward-looking indicator. By looking at the “Dot Plot” and comparing the data to current interest-rate levels, market participants can see where policymakers expect rates to head to and the overall direction of monetary policy. As projections are released quarterly, the “Dot Plot” is widely used as a guide to figure out the terminal rate and the possible timing of a policy pivot.
The most market-moving data in the “Dot Plot” is the projection of the federal funds rate. Any change compared with previous projections is likely to influence the US Dollar (USD) valuation. Generally, if the “Dot Plot” shows that policymakers expect higher interest rates in the near term, this tends to be bullish for USD. Likewise, if projections point to lower rates ahead, the USD is likely to weaken.
