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Dollar Edges Up; Fed Indicates No Rate Hikes in 2019

3/21/2019, 2:05:43 PMMarket Analysis
Dollar Edges Up; Fed Indicates No Rate Hikes in 2019

The dollar recovered on Thursday in Asia, after falling the previous day, as the U.S. Federal Reserve surprised markets by announcing there will be no more rate hikes in 2019.

The Fed flagged slowing global and domestic growth as it left its benchmark rate in a range of 2.25% to 2.5%. The central bank then signalled that it would continue to keep rate hikes off the table for the remainder of the year.

The news sent the U.S. Dollar Index lower against a basket of other currencies overnight. The index clawed back some of its losses today and gained 0.2% to 95.382 by 11:30 PM ET (03:30 GMT).

The central bank also trimmed its forecasts for economic growth and inflation.

"In light of global economic and financial developments and muted inflation pressures, the Committee will be patient as it determines what future adjustments to the target range for the federal funds rate may be appropriate to support these outcomes," the Fed said in a statement.

The statement contrasted with its stance three months ago, when it projected two interest rate hikes for this year.

"The more cautious tone and downgraded U.S. economic outlook will limit dollar upside," said CBA senior currency strategist Joseph Capurso in a Reuters report.

"However, with similarly soft economic growth outlooks elsewhere including Europe, China, Australia and Japan it is questionable whether the dollar will depreciate to any significant extent."

The dollar was also supported by a plunge in the pound amid the fears the U.K. could crash out EU without a deal on March 29 after The EU reportedly said it would only agree to a short delay to Brexit if U.K. lawmakers back Prime Minister Theresa May's withdrawal agreement next week.

On Wednesday, May urged lawmakers, who have twice previously rejected her plan, to back her now.

"I passionately hope that (lawmakers) will find a way to back the deal I have negotiated with the EU, a deal that delivers on the referendum and is the very best deal negotiable, and I will continue to work night and day to secure the support" for the deal,” May said in a statement.

"But I am not prepared to delay Brexit any further than the 30th of June," she said.

The USD/CNY pair was down 0.1% to 6.6823.

The People's Bank of China (PBOC) set the yuan reference rate at 6.6850, the strongest level since July 17, 2018 vs the previous day's fix of 6.7101.

The AUD/USD pair gained 0.4% to 0.7145 even after data showed a surprise drop in Australia's jobless rate. The participation rate fell to 65.6% from 65.7% as fewer people went looking for work. That sent the jobless rate to the lowest level since June 2011 at 4.9%.