TD Securities strategists note that the US Dollar (USD) weakened after the July Federal Open Market Committee (FOMC) rate hold and Chair Warsh’s lack of hawkish guidance. However, they expect the post-FOMC selloff to remain limited unless US economic data begin to surprise materially to the downside.

Dollar reaction to July FOMC

"The broad USD index was down around 0.3% after the statement release, in line with the size of expected USD move under our base case. While the number of dissents were slightly higher than we expected, it was not a huge surprise for the market given these were the same members who dissented to the statement language at the April FOMC."

"The USD weakness moderately extended after the press conference. Market saw a lack of hawkish guidance from Chair Warsh and may have interpreted some of his commentary as weakening Fed credibility."

"The USD knee-jerk sold off on the back of the rate hold decision and lack of hawkish guidance from Warsh. We expect any post-FOMC USD weakness to be short-lived unless US economic data also starts to surprise lower in the coming weeks."

"Nonetheless, we believe that without a material shift in US data, any post-FOMC USD selloff will be limited. Hawkish dissents show where rest of the Fed committee stands on the path of monetary policy."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)