The US Dollar fell to its lowest level of the month so far against several of its major peers after the Federal Reserve hinted that interest rates will remain unchanged for longer than hoped despite the Central Bank further tapering its quantitative easing programme.
The Federal Reserve on Wednesday said it was leaving its benchmark interest rate unchanged at 0.00-0.25% but said it would cut its monthly bond-buying program.
As the Fed’s two day long policy meeting came to a close last night the Bank’s policy makers announced that it would be cutting its quantitative easing programme by a further $10 billion a month to bring the total down to $35 billion as they see sufficient underlying strength in the US economy.
“The Committee continues to anticipate, based on its assessment of these factors, that it likely will be appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends, especially if projected inflation continues to run below the Committee’s 2% longer-run goal, and provided that longer-term inflation expectations remain well anchored.
“The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run,” the Fed said.
The ‘Greenback’ then fell further after the Fed lowered its growth forecast for this year to a range of 2.1% to 2.3% from the previous expectations of 2.8% to 3.0%.
The cause for the changed was cited as a result of unexpected contractions in the first quarter as a result of the extreme weather seen over the winter.
The next movement for the US Dollar is likely to occur later in today’s session as investors will be awaiting the publication of the latest weekly US initial jobless claims and Philadelphia manufacturing activity data.
GBP to USD Update – 20/06/14
The Pound remained at a five-year high against the US Dollar on Friday as the US currency continued to weighed upon by Wednesday’s dovish Federal Reserve comments.
Uncertainty as to when the US Central Bank will raise rates sent the Pound surging to its best level since late 2008.
With investors expecting the Bank of England to raise rates sooner than initially expected the UK and US Central Banks appear to be diverging in terms of their policies.
The markets focused on the interest rates and widely ignored UK data which showed that retail sales fell in May, the first decline seen since January. U.K. retail sales decreased by 0.5% last month, in line with forecasts, official data showed, and were 3.9% higher on a year-over-year basis.
Investors also ignored US data which showed that the number of people filing for initial jobless claims benefits fell more than expected.
The Federal Reserve Bank of Philadelphia said that its manufacturing index climbed to an eight-month high in June.
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