Dollar, Treasuries yields gain after Fed statement

Wed Jul 30, 2014 4:49pm EDT
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By Angela Moon

NEW YORK (Reuters) - The dollar held gains against a basket of major currencies while U.S. Treasuries yields surged on Wednesday after the Federal Reserve raised its assessment of the U.S. economy while reiterating it is in no hurry to increase interest rates.

The Fed took note of a decline in the jobless rate and signaled more comfort that inflation was moving up toward its target.

"We only expected marginal changes, and for the most part we got that - with the caveat that they were a bit more hawkish than was widely expected," said Tom Porcelli, chief U.S. economist at RBC capital markets in New York. "They basically diminished this whole notion of disinflation in their comment."

Wall Street's S&P 500 ended nearly flat while the U.S. dollar held gains, hitting session highs against the yen JPY= at 103.08.

As widely expected, the central bank also cut its monthly asset purchases to $25 billion from $35 billion, leaving it on course to shutter the program this fall.

The statement came after data showed second-quarter gross domestic product expanded at a 4.0 percent annual rate as activity picked up broadly after shrinking at a revised 2.1 percent pace in the first quarter.

"We will be expecting more of a hawkish stance in September," said Aaron Kohli, an interest rate strategist at BNP Paribas in New York. "These kinds of numbers should encourage the Fed to be much more assertive."

U.S. Treasuries yields surged, with two-year note yields at 0.563 percent, the highest since May 2011. Five-year note yields were up 8.5 basis points, the biggest one-day rise in over four months.   Continued...

Punctured euro banknotes which are used to train sniffer dogs, are presented to the media during a news conference on German custom's annual statistics, in Berlin March 21, 2014. REUTERS/Tobias Schwarz