LONDON, March 17 The dollar sank broadly on Thursday, falling nearly another 2 percent to its weakest against the yen since late 2014 after a Federal Reserve meeting that left markets convinced US interest rates would not rise soon.
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The Fed kept rates unchanged, as had been expected, and said moderate USA economic growth and “strong job gains” would allow it to raise rates gradually this year, albeit more slowly than it had earlier thought.
The so-called core PCE (personal consumption expenditures) price index, a Fed’s preferred measure of core inflation excluding food and energy, increased 1.7 percent in January from a year ago, the biggest year-on-year gain since the end of 2012.
Mr Oliver said the Federal Reserve’s continuing dovishness maintains recent upwards pressure on the value of the Australian dollar, which rose 1.5 per cent in reaction to the Fed’s announcement.
In January, the Fed deferred altogether from characterizing the risks facing the US economy and its own policy outlook, as unease grew over the potential spillover from slowing economies in China and Europe.
“Our first take on this is that it probably leans slightly more dovish, relative to expectations”, said Tom Porcelli, chief U.S. economist at RBC Capital Markets in NY. That outlook was clouded by its assessment that “global economic and financial developments continue to pose risks”.
The Fed said it now expects two quarter-point rate cuts this year, not four. On Wednesday, the central bank said it expects to raise rates just twice this year.
The dollar fell against both the euro and the yen in the wake of the statement. The steeper yield curve suggested that the market has all but priced out any near-term rate hike.
There was one dissent from the FOMC decision. The European Central Bank is expanding its quantitative easing program and pushing interest rates deeper into negative territory in an effort to spur economic growth.
The Consumer Price Index (CPI) for all urban consumers declined 0.2 percent in February on a seasonally adjusted basis, on par with market estimates, reported the U.S. Labor Department Wednesday.
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Yet, the Fed Chair was not very hopeful that oil prices, which hover around $40 per barrel at the moment, would reach their previously high levels that were above $100 per barrel before the third quarter of 2014.
