By Karen Brettell
NEW YORK (Reuters) – The dollar fell on Wednesday after the U.S. Federal Reserve said it was still leaning toward an eventual cut in borrowing costs but reiterated it wants to gain “more confidence” that inflation will continue to fall before cutting rates .
“There has been no further progress toward the Committee’s 2% inflation target in recent months,” the Fed said in its statement.
The statement was largely as expected, with Fed Chairman Jerome Powell also saying at a news conference that the US central bank’s next move is unlikely to be a rate hike, raising some concerns about the Fed’s possible shift to a more hawkish stance is taken away.
Stronger-than-expected consumer price inflation in March dashed hopes that the higher readings in January and February were anomalies, prompting traders to adjust their expectations for when the U.S. central bank is likely to cut interest rates.
Fed funds futures traders are now pricing in a 35 basis point easing this year, compared to 29 basis points before the Fed’s statement.
“The lack of change in the forward guidance (which still implies that the Fed sees the next step as a cut – depending on inflation) was marginal easing, and I’m not sure that the new inserted sentence about the lack of progress on inflation is sufficient to offset that. said John Velis, FX and macro strategist at BNY Mellon (NYSE:) in New York.
They fell 0.44% to 105.85, after previously reaching 106.49, the highest level since April 16. A break above 106.51 would be the highest since early November.
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The Fed also announced that starting June 1, it will slow the pace at which it shrinks its balance sheet, allowing it to release only $25 billion of government bonds each month, down from the current $60 billion. Mortgage-backed securities will continue to mature at up to $35 billion monthly.
“The fact that the Fed is going to taper some more tells me that they want to ease conditions. They don’t want to increase the tightness even further,” said Jeffrey Roach, chief economist at LPL Financial (NASDAQ:) in Charlotte, North. Carolina.
The next major economic indicator will be Friday’s April jobs report, which is expected to show employers added 243,000 jobs during the month.
ADP’s employment report showed on Wednesday that US private payrolls rose more than expected in April, while data for the previous month was revised upwards.
A report from the US Labor Department on Wednesday, meanwhile, showed that US job openings fell to a three-year low in March, while the number of people leaving their jobs fell.
The euro gained 0.5% to $1.0718. The pound strengthened 0.34% to $1.2532.
The dollar fell 0.33% to 157.28 yen.
Japan’s currency recovered sharply on Monday, with traders citing intervention by Japanese authorities to buy the yen in an effort to prop up a currency languishing at levels last seen more than three decades ago.
The dollar has since edged higher, raising questions about whether additional steps will be needed to stem further yen weakness. The Japanese currency suffers from a large interest rate differential that makes borrowing in the yen and investing in US assets attractive.
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“There aren’t many options for Japan. In a sense, for most currency traders, intervention is just an invitation to buy the dip at a better level,” said Adam Button, chief currency analyst at ForexLive in Toronto. “The dollar/yen will not stop rising until the US economy cools down.”
In cryptocurrencies, bitcoin fell 1.97% to $58,683.79 after previously reaching $56,483, the lowest since February 27.
