NEW YORK: The dollar was slightly lower on Wednesday against a basket of major currencies after the U.S. Federal Reserve raised interest rates by 75 basis points, as was widely anticipated, but noted signs of a softening economy.
The greenback initially moved higher after the statement but quickly reversed course to trade just below the unchanged mark on the session.
The central bank raised rates by three-quarters of a percentage point for the second straight meeting as it attempts to reign in inflation, but noted that while the labor market remains strong, other economic indicators have softened.
"You certainly can view the policy statement as hawkish but it is pretty consistent with what they have been saying for the last couple of meetings – they are going to continue to hike - estimates had them going into restrictive territory, they are at neutral now and they continue to think they are going to need to go into restrictive territory," said Marvin Loh, senior global market strategist at State Street in Boston.
"Theoretically, the dollar should be stronger in an environment where it is hawkish but it was as expected and we have had a lot of movement in the dollar so far this month."
Comments from Fed Chair Jerome Powell will be closely monitored to gauge if the Fed will maintain an aggressive policy stance in the face of weakening economic data.
Dollar softens before looming Fed hike
The dollar index fell 0.093% to 107.020, with the euro up 0.29% to $1.0143.
Bets on oversized rate hikes helped push the dollar index to a two-decade high earlier this month at 109.29, but the greenback has eased lately as economic data has hinted at a possible recession.
But on Wednesday, data showed the U.S. trade deficit narrowed sharply in June as exports jumped, while orders for non-defense capital goods excluding aircraft, seen as a proxy for business spending plans, rose 0.5% last month, potentially soothing some concerns about the economy.
The euro recouped some of the prior session's decline, which was the biggest one-day percentage drop for the currency in two weeks, but fears of a European recession remain high as Russia further slowed gas supplies to Europe through the Nord Stream 1 pipeline.
The gas crisis, along with political woes in Italy, will push the region into a mild recession by early next year and limit the European Central Bank's path of interest rate hikes, analysts at JPMorgan said.
The Japanese yen weakened 0.07% versus the greenback to 137.04 per dollar, while Sterling was last trading at $1.2066, up 0.34% on the day.
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