Dollar recovers as Fed fails to meet dovish expectations
The U.S. dollar rose against most major currencies on Wednesday, a day after the Federal Reserve delivered an expected rate cut but signaled little urgency to lower borrowing costs quickly in the coming months.
The dollar was supported by data that showed the number of Americans filing new applications for unemployment benefits fell last week, reversing the prior week's jump.
The dollar’s broad strength pressured the British pound, erasing earlier gains logged after the Bank of England left rates on hold and slowed the pace of its government bond sales.
The Fed reduced rates by a quarter point on Wednesday, as expected, with Chair Jerome Powell characterizing the day's policy action as a risk-management cut in response to the weakening labor market, but said the central bank did not need to rush easing.
Powell's words fell short of the "unequivocal dovishness that the markets were expecting," Eric Theoret, FX strategist at Scotiabank said.
The upbeat economic data on Thursday combined with the heavy selling the dollar had seen at the start of the week was enough to lift the dollar, Theoret said.
"I think the balance for the markets was kind of just leaning all to one side and so, it would have taken a lot to break the U.S. dollar even further from here," he said.
Analysts were divided on what to make of the Fed messaging.
While those at Goldman Sachs said that many hints had pointed to Wednesday's cut being the first among many, their counterparts at ANZ characterized the Fed Chair's commentary as "not at all dovish".
The dollar dropped to the lowest since February 2022 at 96.224 against a basket of major peers immediately after the rate decision on Wednesday, but sprang back to trade up 0.4% at 97.347 on Thursday.
Meanwhile, the pound initially edged up after the BoE's decision, but gave up those gains to trade 0.6% lower on the day at $1.35515. Sterling had briefly leaped to the highest since July 2 at $1.3726 in the prior session.
BoE policymakers voted 7-2 to slow the annual pace at which the central bank unloads the gilts that it purchased from 2009 and 2021 to 70 billion pounds from 100 billion pounds, broadly in line with a Reuters poll median forecast for it to be cut to 67.5 billion.
The euro was 0.2% lower at $1.17893, after retreating from its highest level since June 2021 at $1.19185 on Wednesday in a knee-jerk reaction to the Fed announcement.
Elsewhere, the dollar was 0.6% firmer against the Japanese yen at 147.88 ahead of the Bank of Japan's policy decision on Friday.
Cryptocurrency bitcoin was 1.9% higher at $117,837.
Source: Reuters.com
