Forex trends Thursday: US dollar rises as Fed wasn’t dovish enough

U.S. one-dollar currency notes; taken September 2018.U.S. one-dollar currency notes; taken September 2018.

The U.S. dollar advanced on Wednesday after the U.S. Federal Reserve statement came in less dovish than some traders had speculated.

The Fed hiked interest rates by 25 basis points to 2.25 percent to 2.50 percent, as expected, on Wednesday, and signaled it would continue to gradually raise rates as well as continuing to cut its balance sheet.

“Policy does not need to be accommodative,” Fed chief Jerome Powell said, according to a Reuters report.

Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, said that the dollar’s gains were somewhat unexpected as the 10-year U.S. Treasury note yield touched eight-month lows and the market is pricing in the possibility of a rate cut in 2020.

“All of this combined with downgraded GDP and inflation forecasts should have driven the greenback lower but instead, the dollar rallied because the tweaks to the policy statement weren’t dovish enough,” she said in a note on Wednesday, U.S. time.

“Investors had braced for the worst – from no rate hike to dissents and a change in the risk assessment. And while there were subtle tweaks in the statement and lowered growth and inflation forecasts, these changes were not as significant as the market had hoped,” she said.

But she noted, “the bond market is usually right and it will be difficult for the dollar to sustain its gains if yields continue to fall.”

Currencies

The U.S. dollar index was at 96.97 at 7:05 A.M. SGT, jumping from as low as 96.60 before the Fed decision on Wednesday, according to ICE futures data.

The 10-year U.S. Treasury note yield was at 2.77 percent at 8:22 A.M. SGT, falling from as high as 2.829 percent before the Fed decision on Wednesday, according to Tullett Prebon data.

The euro/dollar was at 1.1382 at 8:30 A.M. SGT after trading in a 1.1364 to 1.1439 range on Wednesday, according to DZHI data.

The dollar/British pound was at 1.2619 at 8:31 A.M. SGT after trading in a 1.2605 to 1.2679 range on Wednesday, according to DZHI data.

The dollar/yen was at 112.497 at 8:31 A.M. SGT after trading in a 112.05 to 112.665 range on Wednesday, according to DZHI data.

The dollar/yuan ended Wednesday at 6.8910 after trading in a 6.8869 to 6.8979 range during the session, according to DZHI data.

The dollar/Singapore dollar was at 1.3721 at 8:31 A.M. SGT after trading in a 1.3673 to 1.3737 range on Wednesday, according to DZHI data.

The dollar/Malaysian ringgit was at 4.1840 at 8:08 A.M. SGT after trading in a 4.1740 to 4.1820 range on Wednesday, according to DZHI data.

The dollar/Indonesian rupiah ended Wednesday at 14,460 after trading in a 14,330 to 14,521 range during the session, according to DZHI data.

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