Dollar likely to grind lower as Fed cuts rate forecasts again

The United States dollar is likely to keep sliding lower like we mentioned before that one hike even if it had come yesterday, wouldn’t have been enough to keep fuelling the rise of the dollar. Since late 2014, The Federal Reserve has been lowering the expectation for future rates, thus flattening the hike curve. Compared to December 2014 forecast, Fed is 200 basis points behind the expected curve which fuelled the rise of the dollar.

And yet again in yesterday’s meeting, Fed lowered its forecast for future rates. In June Fed was projecting two rate hikes this year, now it has dropped to one. Similarly, in the projection material, there were 50 basis points cut in rate expectations for next year and also for 2018. Longer run rates dropped below 3 percent. This steady march towards dovish territory should have eroded the strength of the dollar by more than it already has but actions by other central banks, economic uncertainties surrounding the world and demand over regulation changes in the money market mutual fund industry have kept the dollar afloat. And we expect that to continue.

Due to receding hike expectations, the dollar would continue to remain weak and would move lower but slowly. We expect the dollar index, which is currently trading at 95.17, to grind lower towards 90 area.