FX.co ★ Dollar Languishes on Dovish Fed Outlook

The dollar index fell to approximately 98.5 on Thursday, marking its lowest point in over seven weeks, following the Federal Reserve's third quarter-point interest rate reduction this year, a move that aligned with market expectations. The Fed further indicated a less aggressive stance than investors had anticipated, with Chair Jerome Powell suggesting that a rate hike is unlikely, leading traders to predict two additional rate cuts in 2026. Contrarily, the Fed's dot plot suggests only one more 25-basis-point reduction next year. In addition, the central bank announced plans to purchase short-term Treasury bills to enhance market liquidity starting December 12, beginning with an initial amount of about $40 billion. In terms of economic projections, the Fed now expects growth of 2.3% in 2026, an increase from the previous 1.8% forecast in September, while projecting a 2% growth rate for 2027, slightly higher than earlier estimates. Inflation projections have been revised down to 2.5% for 2025 and 2.4% for 2026, slightly above the Fed's 2% target.