US Dollar index drops after Fed
New York (Mar 16) The dollar dropped against a basket of currencies Wednesday afternoon after the March Federal Reserve meeting, where the central bank left rates unchanged but scaled back expectations for future moves.
The dollar index fell 0.79 percent to 95.88 by 2:30 p.m. ET, nearing a one-month low of 95.938 set last Friday.
The euro rose 0.81 percent against the dollar to $1.1198.
The dollar fell 0.43 percent against the Japanese yen, reversing gains that followed Bank of Japan Governor Haruhiko Kuroda's statement that there is room to cut rates to around negative 0.5 percent from the current negative 0.1 percent
Prior to the announcement, the dollar rose broadly on Wednesday, moving in a tight range after solid U.S. economic data, as investors positioned for fresh guidance from the Federal Reserve on when U.S. interest rates are likely to rise.
U.S. core inflation increased more than expected in February, and U.S. housing starts beat expectations for the month, which strengthened the dollar against major rivals. But the moves were subdued as investors expected the data would have little to no impact on the Federal Open Market Committee decision on Wednesday afternoon.
"The main focus is the FOMC," said BK Asset Management Managing Director Kathy Lien in New York. "The bottom line is that investors are looking for a positive outcome, so they're buying dollars, but they don't want to be long dollars overly aggressively ahead of the rate decision. So it's just cautious positioning with a bias to the long side."
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No policy action is expected from the Fed on Wednesday, but the market will be sensitive to any guidance on its next change in interest rates. Any signal that more than one increase is in store this year will help the dollar, while anything dovish could keep it pinned down.
Interest rate futures are pricing in about a 50 percent chance of a quarter-point increase in June. The focus will also be on the Fed's forecasts for future rises, which is still pointing to four rate hikes this year.
On Tuesday, the BoJ passed on the chance to expand its massive asset-buying program but offered a bleaker view of the economy. Some traders said the combination cast a shadow on risk sentiment, which bolstered demand for the safe-haven yen.
The dollar rose strongly against the Brazilian real, gaining 1 percent after news that former President Luiz Inacio Lula da Silva had resumed talks with President Dilma Rousseff after accepting a position in her cabinet.
The real has fallen more than 6.5 percent this week as prospects that Rousseff will be removed from power have dissipated.
Source: Reuters
