In spite of the Fed’s recent rhetoric which led investors to believe that the U.S. central bank was poised to take up a more hawkish bias, the Federal Reserve yesterday failed to follow through, indicating instead that interest rates would remain at their current historic lows for the near term. Analysts and traders alike were surprised that the Fed had lowered its long-term interest rate target, with initial expectations that interest rates would start edging higher as soon as next year. The Federal Reserve did follow through, as expected, with curtailing quantitative easing by an additional $10 billion a month.
In the wake of the Fed’s surprise, the U.S. Dollar Index fell to its lowest level in almost two weeks, losing 0.3% to trade at 80.365 .DXY. The USD/JPY edged lower to 101.91 Yen, down from this week’s peak at 102.38 Yen, while the EUR/USD rose to 1.3600, moving away from the weekly low of $1.3513.
New Zealand Dollar Stronger Gainer
Commodity-linked pairs got a strong boost against the greenback, with the NZD/USD gaining almost 1% to $0.8736, a 6-week peak and moving closer to the 3-year high established last month at $0.8779. The Kiwi Dollar was also supported by GDP data which showed that New Zealand had grown 1% in the first quarter of the year, which is evidence that the country is beating the majority of its peers in developed nations.