Forex trends: US dollar tumbles in wake of dovish comments from Fed

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

The U.S. dollar dropped sharply in the wake of dovish comments from the U.S. Federal Reserve, marking what could be a sea-change in its long-drawn process of “normalizing” interest rates after the extraordinary easing during the Global Financial Crisis.

“This is a big shift for a central bank that just raised interest rates in December,” Kathy Lien, managing director of foreign-exchange strategy at BK Asset Management, said in a note on Wednesday. She added that the greenback could see more weakness as Europe and Asia players get their chance to react to the news.

The Fed kept interest rates unchanged at its policy setting meeting on Wednesday, saying it would be “patient” before taking any further steps and removed “further gradual increases” from its rate outlook.

U.S. Fed chief Jerome Powell said on Wednesday that the case to increase interest rates had “weakened” recently, and concerns, including the federal government shutdown, were clouding the economic outlook.

Shane Oliver, head of investment strategy and chief economist at AMP Capital, said in a note on Thursday that the Fed could be on hold for at least the next six months.

The U.S. dollar index tumbled on Wednesday to as low as 95.27 from as high as 95.97, and was at 95.40 at 7:04 A.M. SGT on Thursday, according to ICE data.

The 10-year U.S. Treasury note yield was at 2.684 percent at 8:32 A.M. SGT after dropping from as high as 2.733 percent to as low as 2.672 percent on Wednesday, according to Tullett Prebon data.

The euro/dollar was at 1.1494 at 8:31 A.M. SGT after trading in a 1.1405 to 1.1502 range on Wednesday, according to DZHI data.

The dollar/Singapore dollar was at 1.3465 at 8:32 A.M. SGT after trading in a 1.3455 to 1.3526 range on Wednesday, according to DZHI data.

Get the Shenton Wire morning briefing in your inbox