Dollar climbs as lengthy Fed easing ruled out. In a widely expected move, the U.S. central bank cut rates by 25 basis points on Wednesday to shore up the economy.
But that cut and one expected later this year were considered insurance cuts, meant to prevent the economy from weakening.
As expected by markets, policymakers moved the U.S. central bank’s benchmark overnight lending rate to a target range of 2.00% to 2.25%, citing concerns about the global economy and muted U.S. inflation.
A blizzard of global data and events was going on. Yet, it was Fed Chair Jerome Powell’s remarks on Wednesday that set the markets running. Powell said the first U.S. rate cut in over a decade was “not the beginning of a long series of rate cuts”.
Investors decided a lengthy Fed easing cycle was unlikely after the first rate cut since the financial crisis.
The greenback ‘s reaction said it all. The dollar climbs to its highest in more than two years on Thursday after the Federal Reserve spoiled hopes of a run of U.S. interest rate cuts. The DXY index surged to its highest in more than two years. Besides, euro/dollar dropped below $1.11 for the first time since May 2017, while Brexit-hobbled sterling hit 30-month lows just above $1.21.
Markets interpreted the Fed’s communication as slightly hawkish. The dollar index that tracks the dollar against a basket of six major currencies rose 0.3% as high as 98.932, a 26-month jump.
On the trade front, U.S. and Chinese negotiators ended a brief round of trade talks with little sign of progress. Yet, they two sides agreed to meet again in September, prolonging an uneasy truce in a year-long trade war.
START TRADINGForex – Dollar climbs as Fed spoiled hopes
The Japanese yen fell to a three-month low of 109.32 against the dollar and was last down 0.4% at 109.16.
The Swiss franc was flat at 1.10 against the euro.
The Australian dollar slipped below key chart support of $0.6832, a level not seen since an early January “flash crash”.
The New Zealand dollar hit a six-week trough of $0.6535 on expectations the Reserve Bank of New Zealand will cut rates next week.
Gains by the dollar after the Fed cut interest rates sent the euro to a 26-month low against the U.S. currency. The euro was last down at $1.1034, the lowest since May 16, 2017, before paring losses to trade down 0.2% at $1.1045. In the past three months, the euro had shed 1.3% against the dollar.
Sterling dropped to a 30-month low of $1.2101 before a Bank of England meeting that’s expected to leave its 0.75% interest rate unchanged. Fears of a no-deal Brexit continue to afflict the pound, which was last down 0.3% at $1.2120. It was higher against the weakening euro at 91.17 pence.
In commodities, oil prices drop below $65 on Fed outlook, ample supply for the first time in six days. Brent crude fell 85 cents to $64.20 a barrel by 0856 GMT. WTI crude was down 89 cents at $57.69.
Gold prices dropped to two-week lows on Thursday after the U.S. Federal Reserve cut rates by 25 basis points as expected. Yet, tampered market expectations of a lengthy easing cycle lifted the dollar to a two-year high, making gold more expensive for holders of other currencies. Spot gold was down 0.4% at $1,407.40 per ounce, after falling to its lowest since July 17 at $1,404.71.
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Sources: Reuters, Investing, CNN money