The US Dollar sold off during yesterday’s trading session after the US Federal Reserve kept interest rates on hold as expected, but the press conference by US Fed Chief Janet Yellen was the driving force behind a much lower US Dollar. Forex traders should be careful as the sell-off which started yesterday may continue throughout the trading week as more economic data out of the US will be released and expectations are lofty especially given the weaker data reported over the past few trading weeks.

The US Dollar rallied sharply as the majority hoped that the US Fed will raise interest rates as early as June. Those hopes were crushed yesterday which resulted in the sharp sell-off in the US Dollar as those hoping for a hawkish Fed and buying late into the rally were either stopped out of their trades or decided to reverse course while those who were in the US Dollar long trade decided to take profits due to the disappointment.

After the strong NFP report for February which showed the addition of 295,000 jobs more US Dollar bulls pushed this currency higher. At the same time negative economic reports out of the US were completely ignored such as a sharp drop in retail sales as well as consumer confidence. This caused the US Dollar to become extremely vulnerable for a violent correction. The US Dollar is likely to go through a similar path as the British Pound did last year.

The British Pound rallied strongly in the first-half of 2014 as forex traders hoped for an interest rate increase by the end of the year. Once it became clear that rates will remain unchanged forex traders shifted and the British Pound dropped over 2,000 pips. The US Dollar finds itself in a similar situation as hopes for an increase in interest rates have driven up the value and yesterday’s more dovish tone has caused a strong sell-off.

When will the US Fed raise rates? Nobody really knows, but Yellen mentioned that the Fed could raise rates late in the second-half. An increase in interest rates at its June meeting is almost certainly not going to be announced and even September seems unlikely. The US Federal Reserve may not raise rates at all this year which means the US Dollar has over 1,800 pips left to drop. Economic data as of late certainly does not support a stronger US currency.