The dollar, on Thursday, July 27, bounced off a 14-month low in European trading as Fed’s sell-offs drags.
The dollar was fast approaching the 200-week barrier on its Canadian counterpart, and had breached that technically important level on the Australian dollar. The Aussie duly climbed 0.6 percent to reach $0.8050, Reuters reports
The dollar even fell back against the yen to 111.03, though the damage was somewhat limited by expectations the Bank of Japan would keep its super-easy policies in place longer than most other global central banks. It was last at 111.21 yen.
Markets were weighing the Fed’s signal that it would begin shrinking its balance sheet as soon as its next meeting in September — essentially another form of monetary tightening — against a tacit acknowledgment that inflation remained softer than it had expected.
“Nothing in this statement changes Pimco’s view that a third rate hike this year is far from a done deal,” said Richard Clarida, global strategic adviser at the California-based fund manager. “If there is no rebound in core inflation between now and December, the next rate hike may be a decision for the next Fed chair, if Janet Yellen is not reappointed.”
On Thursday in the European morning, the dollar index was at 93.569, down 0.1 per cent on the session, taking its decline over the year to date to more than 8.5 per cent. It traded as low as 93.152, the same level as in May last year, Financial Times reports.
In the aftermath of the Fed announcement, the euro powered through $1.17 to hit a 30-month high at $1.1747, up a full cent against the dollar from its level beforehand. The shared currency held the $1.17 line, although it slipped 0.2 per cent on the day to $1.1710. The yen also gained against the US currency, pushing it from ¥112.1 in New York to ¥110.9 in Asian trading, although it weakened back to ¥111.22 during the European day.
Global markets were caught off-guard last month by hawkish comments from central banks, including the European Central Bank, the Bank of England and the Bank of Canada. But in recent weeks softer data and a more dovish tone from those banks and others have weakened the notion that global monetary tightening is imminent.
Yields on 10-year US debt have partly reversed Wednesday’s falls, rising 2 basis points to 2.30 per cent, after surrendering 6 basis points earlier.
On Wall Street the S&P 500, the Nasdaq Composite and the Dow Jones Industrial Average all edged up to set record closing highs. Both are expected to rise by a further 0.1 per cent at the start of Thursday’s trading.
Futures contracts now imply just a 4 per cent chance of an interest rate rise in September, down from a 50 per cent probability in May. December contracts suggested a 40 per cent chance of a rate rise by year end, down from 60 per cent two months ago.
