Dollar falls, euro lifted as Fed turns cautious

31 Jan, 2019

The Fed left interest rates unchanged on Wednesday, as expected, but discarded its promises of "further gradual increases" in interest rates.

The dollar fell to a three-week low against other major currencies and US Treasury yields dropped after the Fed changed its tone.

"Risk assets are dancing in the streets and the dollar's down in the dumps," said Societe Generale strategist Kit Juckes.  "We may yet get a rate hike in June ,but if what matters is where policy's heading in the medium term, the FX market would overlook that and sell the dollar anyway."

The drop in the dollar benefited the euro by overshadowing concern about weakening growth in the euro zone. It rose 0.2 percent to a three-week high of $1.1504.

"The flip-side of the dovish Fed is a stronger euro - this is something the European Central Bank will take note of, that could also bring forward some dovish ECB decisions to control that," said Commerzbank strategist Rainer Guntermann.

But weakening economic momentum in the euro zone has led markets to price in an accommodative ECB through much of 2019. That is likely to limit the upside for the euro over the medium term.

The dollar index, which tracks its value against six other major currencies, fell around 0.2 percent to a three-week low of 95.16. It had already fallen 0.43 percent overnight.

The Australian dollar added 0.3 percent to $0.7277 after rallying 1.3 percent on Wednesday, its largest percentage gain since Jan. 4.

The Swiss franc and yen each gained around 0.15 percent versus the dollar, fetching 108.87 and 0.9923, respectively.

Sterling, which is grappling with troubles of its own on uncertainty over the prospect of a chaotic British exit from the European Union, was up 0.2 percent at $1.3157.

Copyright Reuters, 2019
 

 

 

 

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