Dollar Up, Even After Fed Sticks to Dovish Tone in its Policy Decision

Dollar Up, Even After Fed Sticks to Dovish Tone in its Policy Decision

Dollar Up, Even After Fed Sticks to Dovish Tone in its Policy Decision © Reuters.

By Gina Lee – The dollar was up on Thursday morning in Asia, with the U.S. Federal Reserve saying it was in no rush to raise interest rates through all of 2023 even after predicting a V-shaped recovery in the U.S. economy.

The U.S. Dollar Index that tracks the greenback against a basket of other currencies inched up 0.10% to 91.483 by 9:42 PM ET (1:42 AM GMT) but was at its lowest level in two weeks.

The USD/JPY pair was up 0.24% to 109.09.

The AUD/USD pair lost 0.37% to 0.7823 and the NZD/USD pair inched up 0.07% to 0.7245. New Zealand’s GDP posted a surprise contraction of 1% quarter-on-quarter during the fourth quarter of 2020 earlier in the day.

The USD/CNY pair edged down 0.14% to 6.4948 and the GBP/USD pair inched down 0.10% to 1.3950.

Fed Chairman Jerome Powell stuck to his dovish tone as he handed down the Fed's latest policy decision on Wednesday, putting paid to speculation that the central bank would pull back its stimulus as hopes rise for a strong economic recovery.

“It was the usual Jay after all… markets have been thinking the Fed will raise rates perhaps once next year and a couple of more times in 2023… there will remain questions over whether the Fed can control inflation,” State Street (NYSE:STT) Bank Tokyo Branch Manager Bart Wakabayashi told Reuters.

The Fed also predicted that the economy would grow 6.5% in 2021, the largest annual jump in GDP since 1984 and a 2.3 percentage points difference from its projection three months ago.

Inflation is predicted at 2.4%, above the Fed’s 2% target. However, seven of 18 Fed officials now expect higher rates in 2023, compared to five in December 2020.

The Fed’s comments also sent the ten-year U.S. Treasuries yield on a roller-coaster ride, with yields at around 1.648% during the Asian session.

Some investors remain concerned about potential further market volatility, however.

“While our view remains that movements in yields through the latter part of February and into March have been akin to a ‘taper-less tantrum’, there is potential for further market volatility, perhaps around ‘data tantrums’ over the coming months,” Goldman Sachs (NYSE:GS) Asset Management macro strategist Gurpreet Gill said in a note.

In other central bank news, the Bank of England is widely expected to leave its benchmark bank rate at a historic low of 0.1% and its bond-buying program unchanged when it hands down its policy decision later in the day. The Bank of Japan will hand down its own policy decision on Friday.

Original Article

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