Fed-driven dollar rally fades, focus shifts to ECB meeting
Thu June 14 2018
The dollar slipped back from
three-week highs against the yen on Thursday, quickly erasing gains made after
the Federal Reserve took a slightly more hawkish policy tone in signalling two
more rate hikes by year-end thanks to a solid outlook for the world's biggest
economy.
The greenback's bounce faded as
traders booked profits before the European Central Bank's meeting later
Thursday, where policy makers are seen discussing the timing of winding down
the ECB's 2.55-trillion-euro bond-purchase programme.
The dollar last traded at 110.20
yen, down slightly on the day, having lost steam after hitting a three-week
peak of 110.85 shortly after the release of the Fed's latest policy statement.
The euro was almost flat at $1.1797, bouncing back from $1.1725 hit after the
Fed's decision and edging near last week's high of $1.1840.
“In an increasingly uncertain
world, US monetary policy remains reassuringly boring,” said Stefan Kreuzkamp,
chief investment officer at Deutche Bank's asset management arm DWS.
“Policymakers painted a generally
upbeat picture of the US economy's prospects. Despite ongoing trade frictions,
both we and the Fed expect (US) growth to persist above trend at least through
next year.”
As widely expected, the Fed
lifted key overnight borrowing costs by a quarter percentage point for a second
time this year, to between 1.75 and 2.00 percent.
It also ended its pledge to keep
rates low enough to bolster the economy for “some time” and signalled it would
tolerate above-target inflation at least through 2020. Policy-makers projected
two more rate increases by the end of this year, compared to one previously.
The initial market reaction to
the slightly more hawkish Fed tone quickly faded off, with the focus shifting
to the ECB's policy review later in the global day. Although the ECB is widely
expected to stand pat this month, some traders speculate it may offer clues on
its intentions to begin tapering its bond purchases this year. Others reckon
the policy makers may refrain from signalling changes to ECB's stimulus program
given Italy's political plight and a recent spate of disappointing data in the
euro zone.
Some emerging market currencies
could come under pressure on worries higher US rates might prompt fund outflows
to the United States.Developing countries with large external financing needs
are particularly vulnerable to rising dollar funding costs. The South African
rand, hit lately by weak economic data, slipped to a six-month low of 13.44 per
dollar on Wednesday and last stood at 13.3200 per dollar.
Source: https://www.thehindubusinessline.com