Dollar rallies briefly after Fed keeps rates unchanged

LONDON: The dollar briefly clawed back some of its recent falls this morning after the Federal Reserve said inflation was likely to rise this year, but with expected monetary tightening priced in, traders are waiting
The dollar, which is stuck near three year lows after its worst monthly performance since mid-2016, rose in Asian trading before giving up those gains.
Traders said that non-farm payroll numbers due later this week, as well as a host of other economic indicators, will need to be strong to help push the dollar higher.
The US currency has struggled this year as expected monetary tightening in other parts of the world, alongside stronger global economic growth, encourage investors to put more of their money elsewhere, and particularly back into the eurozone.
The Fed kept interest rates unchanged on Wednesday but said inflation is likely to quicken this year, bolstering expectations borrowing costs will continue to climb under incoming central bank chief Jerome Powell.
Against a basket of currencies, the dollar was flat on the day at 89.082. It touched a fresh three-year low of 88.438 earlier this week.
Against the euro, the dollar also gave up its gains and was down 0.1 % as the single currency once again pushed past US$1.24 to trade at US$1.24275.
The dollar did hold on to its gains against the yen. It edged up 0.3% to ¥109.56, moving away from a four-month low of ¥108.28 plumbed last Friday.
“While the kneejerk reaction has been a higher dollar, we expect the positive effect on the dollar to fade rather soon,” ING analysts said.
Earlier, in Washington, the Fed, citing solid gains in employment, household spending and capital investment, said it expected the economy to expand at a moderate pace and the labor market to remain strong in 2018.
“Inflation on a 12-month basis is expected to move up this year and to stabilise” around the Fed’s 2% target over the medium term, the central bank said in a statement following a two-day policy meeting, the last under Fed chair Janet Yellen.
It also said its rate-setting committee had unanimously selected Powell to succeed Yellen, effective Saturday. – Reuters