Dollar index hits two-week low of 89.49 on less hawkish Fed

• Fed hiked rates as expected, but kept 2018 rate forecasts unchanged.
• Fed revised higher the estimate of the neutral fed funds rate.
• Dollar index hit a two-week low in Asia.

The dollar index (DXY), which tracks the value of the greenback against majors, fell to a two-week low of 89.49 in Asia even though the Fed steepened the path of hikes in 2019 and 2020.

The lack of upward revision of the 2018 dots is likely hurting the greenback, given the currency was trading on the front foot ahead of the Fed decision, largely on expectations of faster fed rate hikes in the short-term.

That said, the drop in the greenback could turn out to be a bear trap, given the central bank revised higher the neutral Fed funds rate to 2.875 percent from the December forecast of 2.688 percent.

The greenback may find bids in Europe and US as the focus may shift to higher neutral rate. However, trade war fears could cap upside in the American currency.

Dollar Index Technical Levels

The DXY was last seen trading at 89.55. A break below 89.40 (Mach 7 low) would open doors for 88.43 (Jan. 25 low) and 88.25 (Feb. 16 low). On the higher side, breach of resistance at 89.70 (session high) could yield a re-test of 90.45 (March 20 high) and 90.57 (Feb. 8 high).