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US Dollar Maintains Losses Despite Higher Interest Rates from Federal Reserve

March 16, 2017 at 18:24 by Yahia Barakah

Ulysses S. Grant on US 50-dollar billThe US dollar maintained its losses for the second day on Thursday, after a surprising drop against most of its major peers yesterday following an interest rate hike from the Federal Reserve. A number of economic releases revealed mixed data today, which forced the greenback to trade within a tight range.

The Federal Open Market Committee ended a meeting that lasted two days on Wednesday, and followed it with a statement that said that the US central bank raised its benchmark interest rate. The Federal Reserve’s move, which was widely anticipated by the market, increased Federal funds rate by 0.25% to a range between 0.75% and 1.00%.

However, the US dollar reacted negatively despite the raise as investors expected the central bank to reveal a more hawkish stance toward more interest rate hikes in the current year. In a press conference that followed the meeting, Federal Reserve Chairwoman Janet Yellen painted a picture of a stable economic growth that requires the central bank to move gradually toward higher interest rates.

Investors, which had priced in the rate hike in the week ahead of the decision as its probability jumped to over 90%, were disappointed that the bank is still waiting for better signals of inflation and economic growth.

On the data front, the US Department of Housing and Urban Development released a report that said that housing starts climbed 3% in February from the previous month. However, building permits decreased 6.2% during the same month, which hints that lower housing starts could be anticipated in following months.

Another report that was published by the Federal Reserve Bank of Philadelphia said that an index of manufacturing in its region decreased to 32.8 in March from 43.3 in February. However, the index still beat estimates of a reading of 30.0.

EUR/USD traded at 1.2353 as of 18:00 GMT, from 1.2374 at 17:24 GMT, the pair’s highest level since March 1. EUR/USD started trading today at 1.2286.

The Dollar Index, which measures the performance of the US currency against a basket of its major peers, was at 100.5 as of 17:52 GMT today, from 100.7 yesterday.

If you have any questions, comments or opinions regarding the US Dollar, feel free to post them using the commentary form below.

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