Dollar Recovers Following Fed Surprise

The Dollar recovered most of yesterday’s losses after recording the largest single session’s decline in nearly 18 months after the Federal Reserve Bank surprised FX investors with a much more cautionary tone than had been expected. Though the Fed policy statement did remove the word “patient” from its stance, as most analysts had expected, it lowered its economic outlook on the US, as well as inflation expectations, and with that, it also lowered its outlook on the path of interest rates. To investors, all that suggested that an imminent rate hike was probably not as imminent as the second quarter of 2015,

As reported at 9:38 am (GMT) in London, the EUR/USD was trading at $1.0631, losing 0.2% for the Euro after an overnight peak of $1.0920, a gain of nearly 2.5% in total, and the largest rise since 2009. The US Dollar Index was also about 1.8% lower, dropping at one point to 97.2070 .DXY, before recovering to 98.8160. The Dollar’s broad losses were seen against the Yen and Pound Sterling as well, with the USD/JPY dipping to 119.29 Yen, before recovering to stand at 120.4525 Yen while the GBP/USD pair dropped from overnight trading at 1.5009 to the current 1.4924.

BoE Maintains Dovish Stance

The Pound Sterling is likely to remain under some pressure as in the U.K., the Bank of England (BoE) also made its policy announcement yesterday, noting that there was a risk that inflation could continue to remain below the BoE target of 2%. That weak inflation outlook effectively supported the BoE’s Monetary Policy Committee’s decision to maintain the current low interest rate environment in the near term. Sterling bulls had been hopeful that the BoE would hint at an imminent rate hike which analysts say now seems unlikely.

Barbara Zigah

After working on Wall Street, Barb began her second career as a freelance writer at Daily Forex, where the CEO recognized fresh, untapped potential and was willing to give her a try. She’s never looked back. Since then, she’s worked steadily as a freelance writer and editor in the financial services and Forex-related industry.