Forexlive Americas FX news wrap: US dollar soars on hawkish dots

• The Federal Reserve cuts rates by 25 basis points, as expected. Dollar higher on dots
• FOMC full statement for December 2024 meeting
• FOMC December 2024 dot plot and central tendencies of economic forecasts
• Powell opening statement: Inflation is much closer to 2% goal
• Powell Q&A: Today was a ‘closer call’ but we decided it was the right call
• Atlanta Fed GDPNow growth estimate for Q4 rises to 3.2% from 3.1% previously
• EIA weekly US oil inventories -934K vs -1635K expected
• Canadian home prices rise 0.6% in November
• US Q3 current account -$310.8 billion versus -$284.0B estimate
• US November housing starts 1.289m vs 1.343m expected

Markets:

• Gold down $53 to $2592
• WTI crude oil flat at $70.10
• US 10-year yields up 11 bps to 4.49%
• S&P 500 down 2.4% in the worst day of the year
• Russell 2000 down 5%
• USD leads, AUD lags

I mean, it wasn’t that hawkish.

Everyone was talking about a hawkish cut from the FOMC today and that’s exactly what we got. The statement itself was largely a non-event as a couple of words highlighting the ‘timing and extent’ of further changes in rates was added and Hammack dissented (she doesn’t vote next year).

What really got the market’s attention was the dots, which showed about 1 fewer cut than anticipated in 2025 and 2026. Given the Fed’s commentary, that’s highly conditional on data and should have been a big mover. What did get some more attention and perhaps cracked markets was Powell, particularly a line where he said that inflation forecasts from September had “kind of fallen apart”.

It was part of a broader shift in his comments back to more emphasis on inflation falling rather than keeping the employment market strong.

My inclination is that this market move isn’t just about Powell’s hawkish turn but rather about Trump’s. In an interview with Fox he said he was ‘totally against’ the bill that would prevent a government shutdown and that’s after some real harsh words from Elon Musk.

The market has been thinking that Trump would prioritize the stock market and that would tilt the government towards larger deficits but now he’s picking a fight with a bill that’s already written and aims to keep the government open.

What doesn’t quite make sense is why the long end is selling off on this. A more-hawkish Fed and fiscally-responsible Washington points to lower inflation and less spending. Both of those should weigh long-dated rates.

This article was written by Adam Button at www.forexlive.com.