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Dollar Dives as FOMC Projections Disappoint

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Dollar drops sharply after Fed hikes federal fund rates by 25bps to 0.75-1.00% as widely expected. The disappointment comes from effectively no upward revision in the projected rate path. The median projection of federal fund rates was held at 1.4% by the end of 2017, same as December projection. Median projection for rate by the end of 2.18 was held at 2.1%, also same as December projection. Median projection for rate by the end of 2019 was revised by a mere 0.1% to 3.0%.

The range of projection for rate was also held unchanged. That is, 0.9-2.1% in 2017, 0.9-3.4% in 2018 and 0.9-3.9% in 2019. Nonetheless, and admittedly, the central tendencies were revised up. Central tendency for 2017 was revised up from 1.1-1.6% to 1.4-1.6.%, for 2018 from 1.9-2.6% to 2.1-2.9%, for 2019 from 2.4-3.3% to 2.6-3.3%.

Looking at other projections, real GDP growth for 2018 was revised slightly up from 2.0% to 2.1%, and unchanged for 2017 and 2019. Unemployment rate projection was held unchanged. Core PCE projection for 2017 for revised up fro 1.8% to 1.9%. But for 2018 and 2019, core PCE projection was held unchanged.

Also, it should be noted that the decision was not unanimous. Neel Kashkari voted to keep interest rate unchanged.

Dollar index responded by dropping sharply after the announcement. The index is back pressing 101 handle. The key will lie on 100.66 near term support, which is now the level to watch. Break will possibly send the index through 99.23 low to extend the corrective pattern from 103.82.