Further aspects against the dollar

The "dots" (i.e. the expectations of the FOMC members as regards future key rates) continue to move downward. The median of expectations for end-2016 (following 2.5% in December, 1.875% in March and 1.625% in June) has now reached 1.375%. 

Hardly surprising therefore that the market continues this downtrend and expects key rate levels of only 0.75% for late 2016, with a falling trend. From the market's perspective, any notable carry improvement for the dollar is becoming less and less likely in the market medium term. 

"Mainly the low interest rate currencies such as EUR and JPY are benefitting from this development and found it much easier to defend their gains following the rate decision than for example AUD and NZD", says Commerzbank. 

Yellen underlined the negative effects of the strong USD on inflation. While she pointed out that a certain amount of USD strength is the natural consequence of rate hike expectations she still gave the impression that enough is enough. 

Even more so as the dollar has appreciated notably over the past few weeks, too. At least on a broad trade-weighted basis - in particular as a result of the deprecation of the EM currencies. 

"However, that also means, the dollar does not have much appreciation potential over the coming months. Otherwise it would have to be expected that the FOMC will become even more cautious, which would void any reason for dollar strength. So USD appreciation will remain slow. In the short run significant USD strength seems to be off the table as Yellen's reference to the exchange rates was just too clear", added Commerzbank.