The dollar index was a tad lower on Friday, leaving it on track for its worst week in a month after Federal Reserve trimmed its long-term interest rate expectations and the Bank of Japan retooled its monetary policy framework.
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“The labor market has continued to strengthen and growth of economic activity has picked up”, read a press release issued at the conclusion of the FOMC two-day meeting.
The U.S. Federal Reserve left interest rates unchanged on Wednesday but signalled it could still tighten monetary policy by the end of this year.
The case for a rates increase “has strengthened” but the Fed has chose to wait “for further evidence of continued progress toward our objectives”, Yellen said in a hawkish statement.
The target range for the benchmark federal funds rate remains at 0.25% to 0.5%, where it’s been since a quarter-point increase in December 2015 that ended seven years of near-zero rates.
The central bank has appeared increasingly divided over the urgency of raising rates. Three of the 17 policymakers said rates should remain steady for the rest of the year.
“We do not feel that the dollar has the wherewithal to make a more concerted run higher in the next few weeks”, he added.
However, HSBC’s analysts wrote that they reckoned bank equity investors were “too negative on negative rates”.
The dollar’s proximity to the 100-yen did not escape the attention of Japanese authorities who do want the yen to rise sharply.
“The looser for longer message from the Fed and the lowering of the median point of rate rise projections is seen as a plus for risk assets, as can been seen in global equities”, said fund manager GAM’s head of multi-asset portfolios, Larry Hatheway.
The dissents from those wanting a hike suggested to some economists that pressure was building.
Fed chairwoman Janet Yellen said she expects one rate increase in 2016 as such increases are required to keep the economy from overheating and to avoid high inflation.
At the same time, bonds are also finding support from the Fed, which now nearly certainly won’t raise rates more than once this year.
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That’s despite signs that economic growth is improving and job growth has rebounded, averaging 180,000 a month recently. All wanted the Fed to raise its key rate at this meeting.
However, September has always been speculated as the Fed’s last chance to act before December due to the US Presidential Election taking place in November.
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“While markets aren’t yet persuaded this is a done deal, a move in December would be the far more likely option given November’s meeting will be just a week before US Presidential elections”.
