• DXY drops to a session low near 102.05 as Fed Chair Warsh takes questions.
• Fed Chair Warsh says credit has tightened and swaps show inflation improving.
• US GDP and PCE come Thursday, the first US data since Wednesday's Fed hold.

Three five-minute bars of Fed Chair Warsh's press conference wiped out the Dollar Index's climb into the decision and took it through the session's earlier low. It fell from just above 102.40 to near 102.05, its lowest of the day, and is trading near 102.10.

Fed Chair Warsh said price stability doesn't hinge on any one calendar date or an isolated data point, and that credit conditions have tightened. He said inflation compensation in swaps is going the right way. The index's drop came across those answers, with traders still putting a December hike near 90% after the statement.

He also said one meeting a year will have no rate vote from next autumn, and he expects six meetings that set policy in 2028. That's fewer dates on which the Fed can move the rate behind the Dollar Index. He described September's hike to 3.75%-4.00% as removing a dose of accommodation, which by his own description leaves the rate accommodative still.

On the calendar

US third-quarter growth comes at 12:30 GMT on Thursday with the Personal Consumption Expenditures Price Index (PCE) for September, the first US numbers since the hold. Both feed the December decision traders were pricing before Fed Chair Warsh spoke.

Thursday at 13:15 GMT brings the European Central Bank (ECB) decision, with the Bank of Japan (BoJ) a day later. Between them they set rates for the Euro and Yen, about 71% of the index.

On the charts

Wednesday's peak near 102.50 came early in the session, and the index drifted lower into a late low before climbing back into the decision. The press-conference drop took it under Wednesday's starting level near 102.35. Intraday momentum is cooling from overbought.

DXY 5-minute chart

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.