Dollar Tumbles After Fed Drops Phrase ‘Patience’

As was expected, the Federal Reserve dropped the phrase ‘patience’ from its statement, and that should have been a bullish event for the US dollar. Yet in reality the currency tumbled after the announcement. What are possible reasons for such behavior?

One of the possible reasons for the drop is that the event has been priced in, and now traders are just taking profit. Yet there are other reasons as well, like the downward revision of the Fed’s forecast for economic growth and inflation. What was perhaps even more important is that the Midpoint of target range was for the federal funds rate was reduced from 1.125 to 0.625, suggesting that an interest rate hike may be postponed till September.

Market analysts are now divided in their outlook for the dollar. Some believe that the greenback should retain its bullish bias while others argue that with diminishing prospects for an early interest rate hike traders should abandon the US currency.

EUR/USD jumped from 1.0596 to 1.0819 (2.1 percent) as of 19:53 GMT today. GBP/USD climbed from 1.4743 to 1.4924 (1.1 percent) while USD/JPY slumped from 121.36 to 120.27 (1 percent.)

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