US economy

Dollar pulls back following Federal Reserve decision


The dollar slipped on Thursday while the yen rallied, as sentiment soured after the Federal Reserve’s tone appeared to disappoint investors looking for a more hawkish signal.

The dollar index, which weighs the US currency against a basket of key counterparts, was down by 0.32 per cent to 96.64 in early trading in London.

After it raised interest rates by 25 basis points — in line with forecasts — the central bank said markets should expect two rate increases in 2019 rather than three. It also acknowledged that inflation isn’t going according to plan, and that growth will be lower.

In response, the stock market recorded significant losses — with the Dow Jones Industrial Average and S&P 500 closing at their lowest levels in 2018— and yields of 10-year Treasury notes falling to the lowest level since April.

Esther Maria Reichelt, analyst at Commerzbank, said that although the marginally lower rate path should support the dollar (“as this means that the recent fall in Fed rate hike expectations was exaggerated”), markets seem to not believe the Fed’s scenario.

“The flat rate curve suggests that contrary to the Fed, market participants harbour considerable concerns about a recession. So in the end the dollar outlook depends on who will turn out to be correct: the market or the Fed,” Reichelt said.

Meanwhile the yen firmed by 0.6 per cent against the dollar, a seven-week high, as concerns over late cycle tightening from the Fed saw the market turn to the safe haven, according to Chris Turner, ING’s head of foreign exchange strategy.



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.