Fri, May 04, 2018 - Page 10 News List

Euro recovers as Fed maintains rates

‘NO SURPRISE’:With inflation moving close to its target, the US central bank decided to leave its benchmark overnight lending rate target between 1.5 and 1.75 percent

Reuters, LONDON

The euro yesterday rose off four-month lows as the US dollar’s recent rally came to a halt after the US Federal Reserve did little to alter market expectations for further interest rate rises this year.

Expectations of faster-than-

expected rate increases in the US, as well as a rapid covering of positions by investors short on the US dollar, have sent the greenback to its strongest level since the middle of January.

In a statement following the end of a two-day policy meeting, the Fed said inflation had “moved close” to its target and that “on a 12-month basis is expected to run near the [Federal Open Market] Committee’s symmetric 2 percent objective over the medium term.”

The Fed’s rate-setting committee also downplayed a recent slowdown in economic and job growth, saying that activity had been expanding at a moderate rate and job gains, on average, had been strong in recent months.

The Fed’s decision to leave its benchmark overnight lending rate in a target range of between 1.5 percent and 1.75 percent was unanimous.

Investors had all but ruled out another increase at this week’s meeting. The Fed raised rates in March.

It currently forecasts another two rate hikes this year, although an increasing number of policymakers see three as possible.

Investors overwhelmingly expect a rate hike at the Fed’s June 12 to June 13 policy meeting.

Analysts interpreted its comments on inflation as a signal the Fed might allow prices rises beyond its target, a stance that would limit the need for the central bank to embark on a more aggressive path of monetary tightening in response to recent rises in inflation.

The dollar index, measured against a basket of currencies, was flat yesterday as the euro rose 0.3 percent to US$1.1983, off the low of US$1.1938 it fell to on Wednesday.

“In the end it was not a major surprise for the market that the Fed left the key rate unchanged at the meeting without a press conference, but made positive comments on the outlook and further rate hikes,” Commerzbank AG analysts said in a note.

“The market will have to get used to the fact that in order to prevent an economic overheating, interest rates in the US will continue to rise,” they said, predicting that rate differentials between countries would have an increased bearing on currencies and could cement euro/dollar at about US$1.20.

The US dollar yesterday eased 0.1 percent to ¥109.68, inching away from a three-month peak of ¥110.05 set on Wednesday.

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