“The comments did not change the direction of the dollar because the two rate hikes by the Fed remain intact”, said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.
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Financial markets reacted to the Fed’s more dovish stance on monetary policy.
“Our house view remains tentatively in favour of a hike at the June [interest rate decision]”, Scotiabank Economics vice-president Derek Holt said in a commentary.
The Fed acknowledged that growth in household spending had moderated, but said households’ real income had risen at a “solid rate” and consumer sentiment remained high.
Rather, Fed officials said inflation is continuing to run below their overall goal and the economy is showing signs of gaining strength.
It warned however that inflation has continued to run below the Committee’s two per cent longer-run objective, partly reflecting earlier declines in energy prices and falling prices of non-energy imports, with survey-based measures of longer-term inflation expectations are little changed in recent months.
The focus is therefore likely to shift to analysing the statement from the meeting and using its wording to judge whether the Fed have moved closer to raising rates or further away.
Esther George, president of the Kansas City Fed, voted against the decision to keep rates on hold.
In recent weeks Japanese Yen exchange rates have strengthened thanks to reduced demand for the US Dollar. Futures markets priced in just one rate hike this year. The central bank raised rates in December for the first time in almost a decade.
Yellen will not be doing a press conference, so it all comes down to interpreting the Fed’s statement.
The Federal Reserve’s statement, following its latest monetary policy meeting, highlighted an improving domestic jobs market even though the economy slowed in the first quarter of the year.
As widely expected, the Fed decided not to raise interest rates on Wednesday at the end of its third scheduled FOMC meeting of the year. A sentence from March stating the “global economic and financial developments continue to pose risks”, was cut entirely.
Of the 10 voting members of the FOMC, only one dissented in the vote on the policy decision.
And on Thursday, the government is expected to estimate that the USA economy grew at a tepid annual rate under 1 percent in the January-March quarter.
But the Fed’s policy statement expressed less concern about global risks than it had at its March meeting. “Commodity prices might be mildly impacted by a bounce in the U.S. dollar, but other drivers seem to be more important for commodity markets at present as the Fed outlook isn’t likely to see a major overhaul any time soon”.
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In US markets, the Dow Jones industrial average rose 51.23 points, or 0.28 per cent, to 18,041.55, the S&P 500 gained 3.45 points, or 0.16 per cent, to 2,095.15 and the Nasdaq Composite fell 25.14 points, or 0.51 per cent, to 4,863.14. The tilt would be the biggest confirmation or red light for those counting on a June rate hike, according to John Herrmann, director of interest rates and sales trading at Mitsubishi UFJ.
