Fundamental Comment

What could happen to the dollar after the Fed’s rate decision?


The U.S. dollar has been moving erratically and fluctuating over the past few days, as investors await the Federal Reserve's monetary decision, as well as political developments in both the tariff crisis and the historic summit between the US President and the North Korean leader.

The dollar index, which measures the performance of the federal currency against a basket of six major currencies, has been trading since last week between the 93 and 94.40 levels.

The period of fluctuation of the dollar witnessed developments in the political arena, the most important was the G7 summit held last weekend, which saw a stalemate in the talks and a failure to reach any point of agreement between the United States and its allies, amid the insistence of US President Trump on imposing new tariffs on steel and aluminum imports.

This event has had a negative impact on the performance of the dollar, but it soon faded away with the other political development, the historic summit between the US President and the North Korean leader in Singapore, which was very positive and the US president's statements after the summit helped to return optimism to the markets again to support the dollar.

Now, investors will direct their attention to the Federal Reserve monetary decision due later in the day, amid expectations the central bank will raise interest rates by 25 basis points to 2% from 1.75%.

The dollar's rise not largely depend on the Fed’s decision to raise interest rate, but on the outlook for rate hikes until the end of the year.

Any positive updates in the central bank’s growth and inflation outlook could raise expectations of seeing four another two hikes before the end of 2018, which could give an impetus to the dollar.

On the other hand, fixing interest rates at 1.75 percent, a downgrade in growth and inflation forecasts or dovish remarks from policymakers could push the dollar lower.

As of 10:19 GMT, the dollar index traded lower at 93.75 after making modest gains over the previous three sessions.

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