US Dollar strengthens as Fed maintains rates and signals cautious policy path

• The Federal Reserve leaves interest rates unchanged at 4.5%, aligning with market expectations.
• FOMC dot plot signals rate cuts, with the median forecast for 2025 revised down to 3.375%.
• US Dollar Index (DXY) gains around 104.00 despite dovish sentiment on future policy easing.

The US Dollar Index (DXY) is gaining traction near 104.00 after the Federal Reserve decided to keep its benchmark interest rate at 4.5%, maintaining a cautious stance amid evolving inflation and economic conditions. The latest FOMC dot plot revealed that policymakers expect a median rate of 3.875% for the current period, down from the prior 4.375%, reinforcing expectations of future rate cuts.

Looking ahead, the Fed revised its 2025 rate forecast lower to 3.375%, a signal of potential policy easing in response to slower economic growth and elevated inflation projections. GDP expectations for 2025 have been downgraded to 1.7% from 2.1%, while unemployment is now forecasted at 4.4%, suggesting a softer labor market outlook.

Despite the dovish forward guidance, the US Dollar Index remains resilient, reflecting cautious optimism among investors. The Fed also announced a slower balance sheet runoff starting in April, adjusting its quantitative tightening approach. Market participants now turn their focus to chair Powell's presser.

DXY daily chart