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The US dollar had a volatile session during the FOMC meeting. The DXY Index initially plunged to 96.2 on the much-anticipated 25bps rate cut to 4.00-4.25% before rebounding to 97.0, driven by profit-taking during Fed Chair Jerome Powell’s press conference. The FOMC surprised with only a lone dissent from newly appointed Fed Governor Stephen Miran, aligning with President Donald Trump’s call for a larger cut. Our view has not changed. The DXY remains weak in the lower half of the price channel (currently between 95.2 and 97.2) that we identified in July.
Fed officials affirmed the market’s expectations for two more 25bps cuts at the remaining meetings of 2025. Powell noted that the pass-through of tariffs into inflation has been smaller than expected but continued to advocate vigilance against complacency. More importantly, Powell acknowledged that the balance of risks has tilted to the downside for jobs too. The significant downward revision in jobs data implied that the US labour market was not as strong as assessed in June, suggesting that the conditions were not as slightly restrictive as initially thought.
We have not lowered our guard on the Trump administration’s push to increase influence in the Fed. Although the near-unanimous rate decision demonstrated the Fed’s independence, the US House Committee on Ways and Means issued a statement that President Trump was correct to criticize the Fed for not lowering rates earlier. Trump could nominate a “shadow Fed Chair” before Powell’s term ends in May 2026, where the designated successor would publicly criticize Powell’s monetary policy decisions. On September 5, US Treasury Secretary Scott Bessent also called for an “independent and nonpartisan review” of the Fed, targeting its authority and independence. 
GBP/USD’s upside bias should remain intact around 1.36, with its resistance level now acting as support. The Bank of England is expected to keep its bank rate unchanged at 4% today and signal its intention to hold rates for the rest of the year. Following its last 25bps cut on August 7, UK CPI inflation remained high at 3.8% YoY in August, unchanged from July’s level, above the BOE’s 2% target. Beyond sticky inflation, Prime Minister Keir Starmer is seeking to regain control of the economic narrative through his cabinet reshuffle and by delaying the Autumn Budget to November 26 to deliver long-term economic stability via tough budget decisions.
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