The DXY rose over 103.5 on Wednesday, halting the plunge that bottomed at the five-month low of 103.25 yesterday, as the euro took a breather. This slight rebound occurred as markets awaited new economic projections from FOMC members.
US dollar index edges higher
The Federal Reserve is widely expected to keep its rates unchanged in its decision later today, while the release of the fresh dot plots in the Summary of Economic Projections will provide insight into how policymakers currently view the delicate balance between the pro-inflationary risks of tariffs and the potential threats those tariffs pose to economic growth. The market has priced in the expectation of two rate cuts by the central bank this year, in line with the FOMC's previous projections from last quarter.
Tariffs hit household spending
Recent data has revealed that the series of tariff threats issued by President Trump have led households and businesses to reassess their spending behaviors and economic outlook. This shift in expectations has contributed to a sharp rise in inflation expectations and import prices. As a result, growth concerns have emerged due to trade barriers and a decline in public spending, limiting any substantial bets on a hawkish policy response. The combination of rising inflationary pressures and growing economic uncertainty has made it difficult for the Fed to decide on a clear path forward. With the markets closely monitoring the latest projections, the delicate interplay between inflation and growth risks will be key to shaping future monetary policy.
