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US Dollar Falls As ‘Patient’ Fed Signals One Rate Hike in 2019

March 20, 2019 at 18:38 by Andrew Moran

US dollar banknotes and coinsThe US dollar is holding steady midweek as the Federal Reserve concluded its two-day policy meeting. The US central bank did not pull off any surprises on Wednesday, signaling that it has become far more bearish than in previous meetings, whether it relates to policy maneuvers or economic estimates.

According to the Fed’s new dot plot, Chair Jerome Powell confirmed that it plans just one increase to interest rates in 2019 and potentially none in 2020. The central bank further said that it would begin to wind down the runoff of its $4 trillion balance sheet beginning in May and finish by September. It did note that it does intend to cut down its holdings of mortgage-backed securities (MBS) after September and then reinvest the maturing proceeds in a diverse array of Treasurys.

The Federal Open Market Committee (FOMC), which will next meet on April 30, left its benchmark fed funds rate in the 2.25% to 2.5% range.

On the data front, the Fed slashed its gross domestic product (GDP) forecast this year from 2.3% to 2.1%. It reduced its PCE inflation forecast from 1.9% to 1.8%, but it did leave its core PCE projection at 2%. Despite the dovish outlook, the Fed still believes its fed funds rate will eventually climb to 2.8%, but it will not happen before 2021.

The Fed cited low inflation, slow economic growth, and multiple data points, such as household spending, business investment, and even employment, as reasons for its decision.

The Committee continues to view sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective as the most likely outcomes. In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes.

The vote was unanimous.

The US Dollar Index cratered after the announcement, plunging 0.41% to 96.02 and erasing its 2019 gains.

The USD/CAD currency pair tumbled 0.35% to 1.3276, from an opening of 1.3324, at 18:17 GMT. The EUR/USD rose 0.52% to 1.1412, from an opening of 1.1354. The GBP/USD fell 0.31% to 1.3227, from an opening of 1.3267.

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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