Dollar Recovers After Fed Policy Announcement

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The U.S. dollar, which recovered after early weakness to go marginally up ahead of the Federal Reserve’s monetary policy announcement this afternoon, slipped after the Fed said interest rates will stay near zero through 2023.

However, the currency recovered lost ground on comments from the central bank that it expects the U.S. economy to recover from the virus crisis thanks to falling unemployment rate.

As widely expected, the Fed decided to keep the target range for the federal funds rate at zero to 0.25%.

The central bank said it expects rates to remain at current levels until labor market conditions reach levels consistent with maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.

The projections from Fed officials suggest consumer price inflation will remain below 2% until at least 2023.

The Fed’s latest estimates point to a 3.7% contraction in GDP in 2020, reflecting an improvement from the 6.5% plunge forecast in June.

However, the Fed downwardly revised its estimates for GDP growth in 2021 and 2022 to 4% and 3%, respectively. GDP growth in 2023 was forecast at 2.5%.

The central bank reiterated its commitment to using its full range of tools to support the U.S. economy in this challenging time.

The dollar index, which rose to 93.28 after the central bank’s comments, was last seen at 93.20, up 0.16% from previous close. The index had earlier dropped to a low of 92.78.

Against the Euro, the dollar firmed up to $1.1810, gaining more than 0.3%.

The Pound Sterling was stronger by nearly 0.6% with a unit of Sterling fetching $1.2964 in late afternoon trades. The sterling hit a high of $1.3008 before paring gains. The Bank of England is scheduled to announce its monetary policy on Thursday.

The Yen was firmer by about 0.41% at 105.00 a dollar. The Bank of Japan’s monetary policy announcement is due on Thursday.

Japan had a merchandise trade surplus of 248.299 billion yen in August, the Ministry of Finance said today. That was well above expectations for a deficit of 37.5 billion following the 11.6 billion yen surplus in July.
Exports were down 14.8% on year, beating forecasts for a fall of 16.1% after sinking 19.2% in the previous month.

Imports tumbled an annual 20.8% versus expectations for a fall of 18% following the 22.3% decline a month earlier.

Against the Aussie, the dollar was flat at 0.7302, after recovering to 0.7279 a unit of the Australian currency from a low of 0.7345 touched earlier in the day.

The Swiss franc was weak at 0.9097 a dollar, losing ground from previous close of 0.9081.

The Loonie edged up marginally to 1.3177 a dollar.

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