Dollar Sinks as Fed Cuts Rates and Boosts Liquidity

Economic Outlook - The FOMC raised its 2025 GDP estimate to 1.7% from 1.6% and its 2026 GDP estimate to 2.3% from 1.8% [1] - The FOMC cut its 2025 core PCE price estimate to 3.0% from 3.1% and its 2026 core PCE price estimate to 2.5% from 2.6% [1] Interest Rate Decisions - The FOMC cut the fed funds target range by 25 basis points to 3.50%-3.75% in a 9-3 vote, indicating potential future adjustments to interest rates [2] - The median forecast for the fed funds rate is projected at 3.375% for the end of 2026, suggesting one 25 basis point rate cut next year [1][2] Currency Market Reactions - The dollar index fell to a 6-week low, down by -0.63%, following the FOMC's rate cut [4] - The euro rallied to a 1.75-month high, up by +0.54%, amid a weaker dollar and supportive comments from ECB officials [7] - The yen rose by -0.55% against the dollar, supported by Japan's producer prices remaining above 2% [9] Central Bank Policies - The Fed will begin purchasing $40 billion in Treasury bills per month starting December 12 to rebuild reserves [5] - ECB President Lagarde indicated that the ECB will likely raise its economic growth forecasts, reflecting a more optimistic outlook [8] - The markets are pricing in an 82% chance of a BOJ rate hike at the next policy meeting on December 19 [10] Precious Metals Market - February COMEX gold closed down -11.50 (-0.27%), while March COMEX silver closed up +0.189 (+0.31%) [11] - Weaker dollar and FOMC's rate cut were bullish factors for precious metals [12] - Strong central bank demand for gold is supportive of prices, with China's PBOC reserves increasing by +30,000 ounces [14]