Dollar down after Fed statement as fewer rate hikes seen

Wed Jan 27, 2016 4:17pm EST
 
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By Dion Rabouin

NEW YORK (Reuters) - The dollar fell against a basket of major currencies on Wednesday following the Federal Reserve's decision to keep its overnight interest rate unchanged and the release of a statement suggesting it was re-evaluating the pace of future hikes.

The statement highlighted concerns about global growth, saying the U.S. central bank's governors would be "closely monitoring" global economic and financial developments, but also maintained a generally positive view of the U.S. economy.

In December, the Fed set a path of four rate increases this year, likely bringing the U.S. overnight interest rate to 1 percent.

Maintaining that path of rate hikes would likely help the dollar against lower-yielding currencies such as the yen and the euro and make it a more attractive currency for investors.

Fed fund futures, however, implied markets expect just one rate hike this year. That put Wednesday's statement squarely in the spotlight.

"The statement definitely gave some nod to the slowdown in U.S. growth and to some of the risks emanating from overseas, but it doesn't seem like they've drastically reassessed their outlook for the U.S. economy," said Ian Gordon, G10 FX strategist at Bank of America-Merrill Lynch in New York.

"From that standpoint, overall I'd say this is dollar neutral."

The dollar whipsawed up and down against global competitors immediately after the statement's release, but overall moved lower.   Continued...

 
A clerk uses a machine to count Chinese yuan (bottom L) and U.S. dollar banknotes at a branch of Bank of China in Taiyuan, Shanxi province, China, January 4, 2016. REUTERS/Jon Woo