Synopsis: Westpac reviews the implications of the Federal Open Market Committee (FOMC) meeting, noting the absence of new hawkish signals which stirred speculation about the Federal Reserve's rate hike cycle nearing its end. The FOMC statement's past-tense description of robust growth and Chair Powell's comments on the diminishing relevance of the "dot plot" over time have contributed to this sentiment.
FOMC Statement Analysis: The recent FOMC narrative seems to lack a commitment to an aggressive future rate hike stance, as indicated by the past-tense usage referring to economic growth and Chair Powell's cautious tone on the "dot plot" projections.
Economic Data Points to Resilience: Despite the dovish interpretations, Westpac suggests that the strength in October's economic data, particularly the labor market, may warrant tighter monetary policy, conflicting with the market's mild expectations for the December FOMC meeting.
GDP vs. Fed Projections: Current GDP growth outpaces the Fed's revised September forecasts, suggesting potential further upward adjustments in the December meeting.
International Factors at Play: Economic challenges in the Eurozone, which may lead to expectations of more aggressive European Central Bank (ECB) rate cuts compared to the Fed in 2024, and cautionary signals from China's services sector and property market, add to the complex global backdrop.
Conclusion: Westpac signals that while the FOMC’s recent communication might have curbed the US dollar's immediate rally, the American economy's resilience, especially regarding GDP growth outpacing forecasts, could prompt another bout of hawkish adjustments in the December FOMC. Simultaneously, global economic headwinds, particularly from the Eurozone and China, could influence the comparative strength of the USD. Thus, any dips in the DXY to the 105.50-106 range may be viewed as opportunities for support, rather than signs of a definitive shift in trend.