The US dollar extended its losses into Thursday to slip to one-month lows against a basket of currencies. The Federal Reserve yesterday lowered its projections on US GDP growth and its dot plot guidance on expected interest rate rises. The FOMC’s outlook is now in line with market expectations of just two rate increases this year.
Analysts had been expecting the Fed to lower its projections but were surprised at the apparent lack of concern for the latest spike in inflation. CPI figures out on Wednesday showed annual core inflation in the US rising to 2.3% in February – the highest since 2012. In yesterday’s press conference, Janet Yellen said she wasn’t yet convinced that inflation is on an uptrend adding that “caution is appropriate”.
The dollar plunged 1% against the yen after the FOMC statement and fell further in today’s Asian session to drop to 111.73 yen in late trading. A bigger-than-expected drop in Japanese exports in February had little impact on the yen today.
The euro jumped 1.2% to climb back above the 1.12 level yesterday and was last trading at 1.1246 dollars. Even sterling managed to make gains and was able to reclaim the 1.42 handle against the dollar.
Commodity currencies also benefited from the greenback’s slide as the Canadian, Australian and New Zealand dollars all rose against their US counterpart.
The Australian and New Zealand dollars both received an additional boost from better-than-expected data. The aussie climbed to a fresh 8-month high of 0.7649 versus the greenback after the unemployment rate in Australia dropped to 5.8% in February versus estimates of 6.0%. Traders ignored earlier remarks on Thursday from the RBA’s Assistant Governor Guy Debelle who said he would prefer a lower Australian dollar.
The New Zealand dollar got a lift from stronger-than-expected GDP data. New Zealand’s economy expanded by 0.9% quarter-on-quarter in the final three months of last year, beating forecasts of 0.6%. The kiwi was last hovering near its intra-day high of 0.6830 in late Asian trading.
Meanwhile, the Canadian dollar reached a near 5-month high of 1.2994 per US dollar and was aided by a rebound in crude oil prices.
US oil futures were back above $39 a barrel today after a smaller-than-expected rise in US oil inventories according to US Energy Department data.
Looking ahead to the remainder of the day, central bank policy announcements are due from the Swiss National Bank and the Bank of England, while Eurozone final CPI figures and US weekly jobless claims will also be watched.
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