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USD Jumps on Higher Dot PLot After FED Rate Cut

Skerdian Meta•Wednesday, December 18, 2024•1 min read

The US Dollar jumped 1 cent higher after the 25 bps FED rate cut, as the Dot Plot showed higher interest rate projections for 2025.

The FED delivered a hawkish cut

Before Powell’s press conference, the DOT Plot projections had already taken center stage. Following the Federal Reserve’s decision to cut interest rates by 25 basis points, the AUD/USD dropped below its 2023 low of 0.6270. While the rate cut was expected, the dot plot projection for 2025 surprised markets by rising to 3.9%, exceeding the consensus forecast of 3.6%-3.7%.

This unexpected hawkish shift fueled strong demand for the US dollar, pushing the AUD/USD to its lowest levels since 2022. The EUR/USD also moved lower, testing the 50% retracement level of the range since 2022. Earlier in November, it broke below this midpoint, heading toward the November 2022 low of 1.0332. If the pair continues to decline, traders will focus on a swing area between 1.0348 and 1.0365. A break below this range would set sights on the 2024 low at 1.0332.

Highlights of the December 18, 2024, FOMC Decision

  • Rate Cut Details:
    • The Federal Reserve reduced rates by 25 basis points, bringing the federal funds target range to 4.25%-4.50% (previous range: 4.50%-4.75%).
    • Market pricing had already factored in this move with 97% probability.
    • Markets had priced in 73.3 bps of cuts through 2025, including this rate decision.
  • Currency Impact:
    • The USD/JPY pair was trading at 153.77 before the announcement.
  • Fed Funds Rate Median Projections:
    • 2024: Remains unchanged at 4.4% (from September).
    • 2025: Revised higher to 3.9% (previously 3.4%).
    • 2026: Increased to 3.4% (up from 2.9%).
    • 2027: Revised to 3.1% (up from 2.9%).
    • Longer run: Adjusted to 3.0% (from 2.9%).
  • Economic Projections for End of 2025:
    • GDP Growth: Revised but details are not disclosed (previously 2.0%).
    • Unemployment Rate: Adjusted from September’s estimate of 4.4%.
    • PCE Inflation: Lowered from 2.1% (September estimate).
    • Core PCE Inflation: Revised down from 2.2% (September estimate).

Here is the dot plot from September 2024 meeting:Dot Plot September

Here is the NEW dot plot from the December 2024 meeting:

 

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ABOUT THE AUTHOR See More
Skerdian Meta
Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.
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