Dollar nursing losses at 13-month lows after Fed statement
The U.S. dollar was nursing losses at 13-month lows against a basket of the other major currencies on Thursday after the Federal Reserve’s latest policy statement indicated that it may not raise interest rates again this year.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was at 93.33 by 03.40 a.m. ET (07.40 a.m. GMT) after touching a low of 93.00 overnight, the weakest since June 2016.
The index has fallen around 2% so far this month and is down around 8% for the year to date.
The Fed said Wednesday that inflation remains below its 2% target even as near-term risks to the economic outlook appear “roughly balanced.” In the past, the Fed judged that weakness in inflation was transitory.
The more cautious tone on inflation added to concerns that the central bank won’t rush to raise rates before the end of the year.
The Fed also said it expected to start shrinking its balance sheet "relatively soon", prompting expectations for an announcement in September.
The dollar had been supported by the Fed's gradual policy tightening since late 2015 but the prospect that other major central banks may join it in tightening monetary policy has fed into recent dollar weakness.
The dollar was steady against the yen, with USD/JPY at 111.23, not far from the five-and-a-half week low of 110.61 set on Monday.
The euro was a touch lower with EUR/USD last at 1.1720 after rising to highs of 1.1777 overnight, the strongest level since January 2015.
The euro remained buoyant after European Central Bank President Mario Draghi signaled in June that it could soon start tapering its stimulus program.
Sterling hit 10-month highs against the dollar, with GBP/USD rising as high as 1.3157 overnight. It was last at 1.3135.
The Canadian dollar was steady near 14-month peaks, with USD/CAD at 1.2444.
Demand for the loonie was underpinned by expectations for higher interest rates after the country’s central bank hiked rates for the first time in seven years this month and indicated that it will need to hike again in the coming months.
Meanwhile, the Australian dollar rose to its highest level since May 2015 overnight, with AUD/USD touching 0.8066. It was last at 0.8034.
The New Zealand dollar also hit 26-month highs against the greenback, with NZD/USD up 0.27% to 0.7539.