USD Index falls as Fed delivers expected rate cut with dovish guidance

The Dollar Index declined throughout the week ending December 12, pressured by the Federal Reserve's anticipated rate cut and forward guidance. The six-currency basket measuring dollar strength weakened as markets digested the Fed's monetary policy decision, which aligned with consensus expectations but included less hawkish commentary than some anticipated. The central bank's tone suggested a more measured approach to future tightening, weighing on dollar sentiment across major pairs. Market participants interpreted the Fed's communication as signaling potential pause in the aggressive rate trajectory, leading to broad-based dollar selling. The index's decline reflected shifting rate differential expectations between the US and other major economies. Technical indicators point to further near-term weakness if support levels fail to hold. Traders are now focusing on upcoming economic data and Fed speaker comments for clues about the policy path ahead, with dollar vulnerability likely to persist if dovish sentiment remains.