The US Dollar (USD) initially rallied on the release of the new FOMC statement but then sold off when Chair Jerome Powell seemingly deliberately adopted a new script that a September rate cut 'could be on the table'. That phrase – together with the emphasis on the switch back to the central bank's dual mandate – did actually see US short rates move, ING’s FX strategist Francesco Pesole notes.

DXY may become biased to recent lows

“The Fed's terminal rate for the expected easing cycle dropped to a new low for this decline. For example, the one-month USD OIS, priced two to three years forward, dropped back to the early February lows and undermined the emerging view that a potential Donald Trump presidency would mean a higher Fed terminal rate.”

“This softening in US short-dated rates should be negative for the dollar and positive for risk assets. The problem for risk assets is that geopolitical threats plus a very soft manufacturing story in Europe and Asia are hardly supporting growth-friendly currencies. Perhaps that is why the biggest beneficiaries of this softer USD environment continue to be the Japanese yen and the Swiss franc.”