US Dollar Weak After Powell Shoots Down Early Rate Hike Expectations
The US dollar is trending lower against other majors Euro and Sterling on Thursday, a day after the FOMC when the Fed maintained that it was not keen on hiking interest rates anytime soon even though it did start dialing down its monthly asset purchase program. At the time of writing, the US dollar index DXY is trading at around 94.01.
During the previous session, the US central bank announced that it would trim asset purchases from $120 billion to $105 billion every month, as they had announced a few weeks back. While this did offer some support to the greenback, Fed Chair Powell’s comments on being patient about increasing interest rates from record lows served as a dampener, causing the currency to tumble.
The dovish comments from Powell drove additional strength in GBP/USD which has been trading strong in recent sessions over rising expectations that the BOE could announce a rate hike in its policy meeting today. The Sterling closed Wednesday’s session up by 0.51% and rising from the lowest levels seen in two weeks. In the wake of the FOMC announcement, the common currency also posted some gains, holding above the $1.16 mark.
With inflation remaining above target for longer than the Fed had originally predicted, investors remain focused on how the US central bank plans to tackle inflationary pressures and their impact on economic recovery. While the latest FOMC meeting was all about tapering asset purchases, investors anticipate that upcoming meetings could shed light on Fed’s outlook towards inflation.
Meanwhile, the weakness in the US dollar has helped commodity currency AUD post a slight recovery after trading bearish in the wake of the RBA meeting earlier this week. However, the safe haven Japanese yen remained unaffected, continuing to trade close to the lowest levels seen in several weeks.
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