Dollar trembles after Fed pushes back against rate hike conjecture

Ultimately, the market was kind of positioned for something a little bit more hawkish, and maybe the fact that those rate hikes are pushed out to 2023 has been enough to cause some decent dollar selling

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The U.S. dollar was on the defensive on Thursday after the Federal Reserve signaled it was in no hurry to raise interest rates through all of 2023 even as it saw a swift recovery in the world’s largest economy.

The dollar’s index against six major currencies stood at 91.488. It had hit a two-week low of 91.340 after remarks from Fed Chair Jerome Powell dampened speculation the stronger economic outlook could propel the central bank to wind back its stimulus.

The euro eased to $1.19655, but was hovering close to its one-week high of $1.19900 after rallying 0.6% on Wednesday.

“What the Fed said is a very market-friendly outcome. It’s negative for the dollar, good for inflation expectations,” said Chris Weston, the head of research at Pepperstone Markets, a foreign exchange broker based in Melbourne.

“Ultimately, the market was kind of positioned for something a little bit more hawkish, and maybe the fact that those rate hikes are pushed out to 2023 has been enough to cause some decent dollar selling.”

The U.S. central bank now sees the economy growing 6.5% this year, which would be the largest annual jump in gross domestic product since 1984. Inflation is now expected to exceed the Fed’s 2% target to 2.4% this year, although officials think it will move back to around 2% in subsequent years.

The 10-year U.S. Treasuries yield edged back up to about 1.6710% and was nearing a more-than-one-year high.

Against the yen, the dollar slipped 0.2% to as low as 108.620 yen after a Nikkei report said the Bank of Japan (BOJ) is expected to slightly widen an implicit band at which it allows long-term interest rates to move around its 0% target.

 

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