US Fed’s Dovish Tone Hurts USD

The dollar sank to its weakest level in three weeks on Thursday after a cautious message from the Federal Reserve stopped well short of the aggressive signal of prospective higher interest rates expected by some in the market.

In Europe, meetings of the Swiss and Norwegian central banks were the early focus. The euro traded at its highest level in 10 days against the dollar while sterling inched up to a new 5-year high of $1.7018 and the New Zealand dollar soared to a record high.

New projections suggested the Fed saw rates rising more in 2015 and 2016 than it had previously forecast, but officials lowered their long-term rate target. The Fed also sounded comfortable with the inflation outlook despite recent signs of a pick-up in price pressure.

Fed chief Janet Yellen said there had been “a slight decline of projections pertaining to longer-term growth” and officials lowered their view of the expected long-term federal funds rate from 4 percent to 3.75 percent. U.S. Treasury yields fell, with the benchmark 10-year rate dropping to 2.582 percent from the U.S. close of 2.615 percent.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza