The Federal Reserve did not live up to the expectations of dollar bulls: and although the regulator's decisions met the "basic requirements" of the base scenario, the results of the December meeting disappointed the greenback. The dollar index headed towards the bottom of the 97th figure, reflecting a decline in demand for the US currency throughout the market. In turn, the euro-dollar pair more than made up for the lost positions, reaching the middle of the 11th figure and thereby updating the 5-week high. Now the bulls of the pair will have to go through another test in the form of the ECB December meeting. However, the vulnerability of the dollar in any case will affect the dynamics of prices, therefore, in this case, you still need to figure out what exactly the dollar bulls did not like?

Looking ahead, it should be noted that, first of all, the dollar was the victim of high market expectations. Just two weeks before the Fed's December meeting, US macroeconomic reports appeared in the green zone, one better than the other (with the exception of the manufacturing sector): GDP growth data for the third quarter were revised upward, Nonfarms updated a 10-month high, the unemployment rate fell to a 50-year low, and the annual growth rate of the general consumer price index was the strongest since January 2018 (despite the fact that the other components also came out better than expected).

Such results made it possible for dollar bulls to count on a more hawkish mood among Fed members. According to general market expectations, the regulator should have hinted at a rate increase of 25 basis points over the next year. Whereas the very fact of the wait-and-see attitude of the Fed was already fully taken into account in prices.

But the Fed has maintained a cautious attitude at the end of the last meeting this year. It cannot be said that the tone of yesterday's meeting was dovish in nature - the regulator's members did not disregard the latest trends in the US economy. Nevertheless, traders expected more from the Fed. The series of positive releases that preceded the December meeting created the illusion of hawkish intentions on the part of the Fed members. And after the regulator refuted these intentions, the dollar collapsed throughout the market.

So, from the positive aspects, the following can be noted. Firstly, Fed members removed the phrase "uncertainty about further forecasts" from the text of the accompanying statement. Secondly, all members of the Committee unanimously voted to maintain the status quo (there has not been such cohesion in the Committee since May of this year). Thirdly, regulator members focused on the positive aspects of the US economy. They noted the "strength" of the US labor market and the moderate economic growth of the country as a whole. The regulator also expressed confidence that inflation will reach the target two percent level next year.

Actually, this exhausts the list of positive aspects of yesterday's meeting. All other aspects of the December meeting played against the US currency. First of all, it should be noted that the regulator has not forgotten about negative trends. According to Powell, consumption growth has significantly slowed (from 4.6% to 2.9%), while the decline in investment has sharply increased. Company investments and exports remain weak. Inflation de facto remains below the two percent target level, and if this trend continues, this may lead, according to Powell, to an "unhealthy dynamic". In addition, the Fed chief repeated his opinion on under what conditions the regulator will begin to tighten monetary policy. According to him, the inflation rate should exceed the 2% level and hold on this level for some time before the Fed considers the possibility of raising the base interest rate. He voiced this idea in the summer, speaking in the US Congress - and now he only reminded the market of the immutability of his intentions. Powell also stated that the Fed "will continue to monitor incoming data, including global events," despite the fact that "monetary policy does not follow a predetermined course." These formulations suggest that, with a significant change in the external fundamental background (that is, in the case of an escalation of the trade war), the regulator may resort to retaliatory measures.

And yet, dollar bulls were upset not so much by Powell's rhetoric as by the dot plots. Most members of the regulator - 13 - are in favor of maintaining a wait-and-see attitude throughout the next year. Moreover, there were more hawks in September - 9 out of 17 Fed members voted for a rate hike in 2020. Now, only four Committee officials are advocating this step. The Fed plans to return to raising the interest rate only in 2021. Nine members of the Fed spoke in favor of one or two hikes - the rest of the colleagues either spoke in favor of maintaining a wait-and-see position, or for a sharper increase in the rate (although only 1 member of the Committee voted for this step).

Thus, the Fed put the process of easing monetary policy on a long pause, but dollar bulls were counting on one round of rate hikes next year. The dollar is still vulnerable, but it is too early to talk about the prospects for EUR/USD - traders of this pair need to completely put together the puzzle of the fundamental picture, taking into account the position of the ECB under the chairmanship of Christine Lagarde.