US Dollar Mixed on Dovish, Optimistic Federal Reserve

The US dollar was mixed against its major rivals midweek as analysts and investors are trying to make heads and tails of the Federal Reserve‘s latest policy announcement. The US central bank left interest rates unchanged, but it confirmed that it will “closely monitor” the numbers to determine if rates need to be lowered. Despite the dovish signals, Fed officials are still optimistic about the US economy, sticking to their original estimates.

On Wednesday, the Fed completed its two-day Federal Open Market Committee (FOMC) policy meeting for June. As the market expected, the central bank left benchmark interest rates steady in the target range of 2.25% to 2.50%. The vote was overwhelming – nine to one – with the one dissenting voice being St. Louis Fed Bank President James Bullard, who wanted a quarter-point decrease.
But Fed members seem divided on a rate cut this year. The median projection – the â€œdot plot” – does not see a change in rates in 2019. Instead, the median estimates forecast a 25-basis-point reduction next year. The dots do highlight a sharp gap: Eight officials think one or two rate cuts could happen this year and the same number think another one or two might take place in 2020.
Because of â€œuncertainties” in the market in the last six weeks and inflation still being low, the Fed has removed “patient” from its policy statement. Instead, the Eccles Building said that it will pay attention to the information coming in about the economy, and Chair Jerome Powell told reporters that he “wants to see more” before pulling the trigger on a rate cut.

In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

The Fed did downgrade its inflation forecasts and does not believe it will meet its 2% target for two more years.
Despite the doom and gloom, officials remained upbeat about the US economy. The Fed stuck to its GDP predictions of 2.1% this year, 2% in 2020, and 1.8% in 2021.
On the data front, mortgage applications slumped 3.4% in the week ending June 14, down from the 26.8% increase in the previous week, reports the Mortgage Bankers Association (MBA). Initial and continuous jobless claims are out on Thursday and the consensus suggests a decline.
The US Dollar Index tumbled 0.56% to 97.10, from 97.63.
The USD/CAD currency pair fell 0.58% to 1.3300, from an opening of 1.3377, at 19:08 GMT on Wednesday. The EUR/USD climbed 0.41% to 1.1240, from an opening of 1.1195.

If you have any questions, comments, or opinions regarding the US Dollar, feel free to post them using the commentary form below.

Leave a Reply

Your email address will not be published. Required fields are marked *