The U.S. Federal Reserve (FED) issued its semi-annual Monetary Policy Report to Congress today, amid little fanfare. Surprises were hard to find in the comments and the main theme seemed to be “nothing to see here.” Nonetheless, currency traders appear to have taken the status-quo tone as being dovish. The result has been a slipping USD against the Swiss franc, Euro, Japanese yen, and Canadian dollar.

FED Monetary Policy Report

To a large degree, forex players have already priced four FED rate hikes into the market for 2018. This sentiment is popular, as FED Chair Jerome Powell has publicly stated that four is the magic number on several occasions.

However, there is growing skepticism over the prospect of two more rate hikes occurring this calendar year. The CME FEDWatch index is showing a 51% chance of a December move, which represents the fourth rate hike. This number is down from 55% just yesterday.

Let’s dig into some of the high points of today’s FED report:

• “Inflation is a little above the FOMC’s long-term 2% benchmark”
• “Higher oil prices will drag on GDP less than a decade ago”
• “The personal consumption expenditure index will remain at 2.1% for 2018, 2019”
• “Growing inflation is on track with expectations”

In layman’s terms, things are going as planned. The FED is going to take a wait-and-see approach on the fourth rate hike, likely not making a decision until the November meeting. If equities post a big second half of the year, the odds of rates hitting 2.25% by New Year’s Eve will increase dramatically.

Market Fallout

Since the FED’s report has hit the wires, U.S. indices have broken to the bull. The USD is coming off across the majors and commodity pricing is down moderately.

Today’s report avoided an aggressive tone. While terms like “overheating” and “sugar-high” are commonly used by the financial media to describe the U.S. economy, the FED’s verbiage was business-as-usual.

It appears the lack of an aggressive posture from the FED has caught currency traders off balance. With new questions surrounding a fourth rate hike for 2018, the USD appears to be in for some pain as the weekly close nears.