Asian stocks started the day positive after the Fed’s slightly dovish statement but gave up earlier gains to turn negative in late Asian trading. China’s Shanghai Composite index closed lower for a third straight day, ending the day down 2.9%.
The US dollar rebounded from yesterday’s lows when it dropped immediately after the FOMC statement. The Fed kept rates unchanged but said it is “closely monitoring” the developments in global financial markets and acknowledged that US growth had slowed towards the end of 2015. It also said inflation is likely to remain low in the near term and that future increases in the fed funds rate will depend on the actual and expected path of inflation.
The dollar hit a low of 118.41 yen in late US trading yesterday but was back up at 118.78 yen in today’s Asian session. The euro briefly spiked up above 1.09 dollars but had receded to 1.0873 dollars on Thursday. US equities fell by over 1% as traders were hoping for a more dovish stance by the Fed.
Weaker-than-expected Japanese retail sales figures for December helped the dollar’s recovery in Asian trade.
Meanwhile, the New Zealand dollar took a sharp tumble after the Reserve Bank of New Zealand signalled at more rate cuts, although it kept its cash rate unchanged at 2.5% in today’s meeting. The RBNZ said inflation is likely to take longer-than-expected to reach the target and that uncertainty about the global economy had increased. It added that further depreciation of the New Zealand dollar would be appropriate. This sent the kiwi down to 0.6415 against the US dollar but it managed to recover slightly to 0.6458 in late Asian session.
The pound stuck near yesterday’s lows at around 1.4250 dollars as traders await the first GDP estimates of UK fourth quarter growth. The UK economy is expected to have expanded by 0.5% in the final quarter of last year.
Also coming up later today are the January flash inflation figures for Germany and the latest durable goods orders in the US.
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