The dollar held onto recent gains on Thursday morning after the Federal Reserve made a hawkish policy statement on Wednesday afternoon to summarize its two-day policy meeting. Though the Fed kept interest rates current in May, it signaled that it is likely to raise rates in June. According to the CME Group’s FedWatch Tool, traders now see a 2 percent chance of a rate hike next month, up from 63 percent before the Fed’s announcement. According to Wells Fargo Securities, chance of a rate hike were up only 5 percent after the announcement.
The dollar was trading at 112.83 yen at 6:30 a.m. GMT, holding onto gains of 0.6 percent seen on Wednesday afternoon. The Fed’s hawkish tone all but dismissed weak first-quarter data in which the economy grew at only 0.7 percent, which the Fed acknowledged in its statement.
"The Committee views the slowing in growth during the first quarter as likely to be transitory and continues to expect that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term," they wrote.
Noticeably absent from the Fed’s announcement were changes to the Fed’s balance sheet, the details of which are expected to be exposed in the meeting’s minutes which will be released on May 24. About its balance sheet, the Fed only noted that it was maintaining it strategy of balance sheet reinvestment. Analysts expect the Fed to focus more intensely on the balance sheets after the next interest rate hike.