FOMC hikes rates but signals pause

The official non-manufacturing purchasing managers' index (PMI) stood at 56.4 versus 58.2 in March, according to data from the National Bureau of Statistics, above the 50-point mark that separates expansion and contraction in activity on a monthly basis.

In the most recent meeting, the US Federal Reserve hiked rates by 25 basis points, as anticipated, to take interest rates in the US to 5.25%, slightly beyond the terminal rate of 5.1%. However, the US Dollar Index (DXY) fell to the key support level of 100.80 which was last reached in April and February 2023, following the release of the rate hike decision.

The DXY trading lower was driven primarily due to comments from Chair Powell where he indicated that the Federal Reserve was “closer to the end than the beginning” and that it “felt like they are close, or even there”. This signaled to the market that the Federal Reserve could pause on future rate hikes, leading to the weakness seen on the DXY.

In the lead-up to the Federal Reserve rate decision, the upside on the DXY was limited by the round number resistance area of 102 and the 200-period moving average (200 MA). With the DXY approaching the key support level of 100.80 and the relative strength index (RSI) heading down toward the oversold region, watch out for the development of price action along the support level. If the DXY continues to trade lower the next key support level is at 100 which was last tested in April 2022.