Dollar weaker in Asia after Fed holds, shows caution on rates
The dollar fell in Asia on Thursday as the Fed held steady and pointed to cautious moves on interest rates and policies
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was last quoted down 0.67% to 93.29.
In a light regional data day after South Korea reported second quarter GDP came in at an expected 0.6% gain on year.
Overnight, the Federal Reserve voted Wednesday not to raise its key interest rate, and said it expected to begin normalising its $4.5 trillion balance sheet "relatively soon."
The Commerce Department said on Wednesday new home sales rose 0.8% to a seasonally adjusted annual rate of 610,000 units last month. May's sales pace was revised down to 605,000 units from the previously reported 610,000 units.
Monetary policy, however, remained front and center
In a move largely expected in financial markets, the policymaking Federal Open Market Committee (FOMC) agreed to keep its benchmark rate target at 1%-1.25%.
The accompanying statement revealed concerns among policymakers about the recent slowdown in inflation, which remained well below the central bank’s target of 2%.
Inflation data has undershot market expectations for four-straight months, showing little sign of improvement but policymakers remained optimistic that the pace of inflation will stabilise over longer-term.
"Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance," the Federal Reserve July policy statement noted.
The Federal Reserve statement also noted that interest rates are likely to remain low for "some time", highlighting that increases in its benchmark rate will depend on incoming economic data.
Financial markets moved lower after the rate decision, with the dollar and treasury yields touching session lows while gold turned positive, as market participants judged the Fed's statement as dovish.