Fed's Meeting Outlook: Dollar Stability Hangs in the Balance as All Eyes Turn to the Dot Plot

EURUSD has stabilized around the 1.07 level, while the dollar index hovers near the 105 mark ahead of the Federal Reserve's meeting scheduled for today. Markets are not anticipating a rate hike; however, the rhetoric regarding the November decision, which the market views as the most likely date for another, potentially final, rate increase this year, will have a significant impact on asset prices. A crucial piece of information regarding the November meeting will be the Dot Plot – the forecasts of top Fed officials regarding interest rates in 2023-2025 and the long-term period, all displayed on a single graph. Currently, it appears as follows:The red dot on the chart represents the median forecast, indicating a rate of 5.50% for this year, which is 25 basis points above the current level.Apart from the increase this year, there remains high uncertainty about the trajectory of rates next year. The market is concerned about when the Fed will start cutting rates next year, if at all. The Dot Plot will also clarify the Fed's stance on this issue, so any change in the median forecast for the next year will have a strong impact on market expectations today.If the Fed excludes a rate hike this year or the Dot Plot points to a lower median rate forecast for the next year, it will send a strong bearish signal for the dollar. In general, the forecast for 2024 could be an interesting point, especially in terms of its impact on the currency market. The median forecast is likely to remain unchanged at 4.64%, indicating a potential 100 basis points cut next year. Given the resilience of the U.S. economic outlook and the reinforcement of the "higher rates for longer" concept, there is a nonzero risk that the median forecast for 2024 could be revised upward. In other aspects, only minor changes in the statement are expected, maintaining a reference to further rate increases that "may be appropriate." Additionally, Federal Reserve Chair Jerome Powell is likely to keep all options open during the press conference. Anticipate the usual resistance against rate cut expectations (which have recently been softened), especially if not signaled by a revision in the Dot Plot for 2024.The overall message from the Federal Reserve should support the dollar: the Fed will hint at keeping the door open for further tightening if necessary and will do everything possible to undermine the idea that rate cuts are still a long way off. However, market expectations seem quite condensed around this scenario. As mentioned earlier, 2024 could be a point of greater uncertainty: leaving the Dot Plot for 2024 unchanged may not be enough to trigger a significant correction in the dollar's exchange rate, but higher 2024 forecasts could lead to another leg up for the dollar. Beyond the short-term impact, this meeting is unlikely to be a game-changer for the dollar, as the focus will remain on U.S. economic data.