US Dollar Rises after Fed, Pound Falls despite BoE Rate Hike

The US dollar rose against a currency basket on Thursday, following the Federal Reserve’s optimistic outlook for the economy and as the central bank signaled more rate hikes this year.

The US dollar index was up 0.3 percent to $94.74 against a basket of six major currencies, moving away from last week’s 3 ½-week low of 94.08.

The greenback added 0.02 percent to 1.3006 against the Canadian dollar, while it gained 0.1 percent to 0.9938 against the Swiss franc.

Fed Leaves Rates Unchanged, Upgrades View of Economic Growth

The dollar’s gains were driven by Fed’s decision to leave interest rates unchanged at 1.75 percent to 2 percent, which was widely expected during its policy meeting on Wednesday.

The central bank also improved its view of the US economy, saying the country’s economic expansion has been growing strongly and the labor market continued to strengthen.

With the meeting being mostly uneventful, analysts saw the only development worth focusing on was the slightly bullish assessment of growth in economic activity, which the Fed now described as strong as opposed to solid previously.    

Also supporting the dollar was the demand for safe haven, amid renewed concerns over the trade dispute between the world’s two largest economies.

The US raised trade tensions with China a notch higher on Wednesday by announcing its plans to increase tariffs on $200 billion worth of Chinese products from 10 percent to 25 percent 

USD/JPY Falls after BOJ Decides to Keep Interest Rates Low

Against safe-haven yen, the greenback declined 0.2 percent to 111.45 after the benchmark Japanese government bond yields hit a 1 ½-year high.

Gains of the Japanese currency were capped after it fell on Tuesday, following the Bank of Japan’s (BOJ) decision to keep interest rates low.

Chief currency strategist Minori Uchida said no major changes were seen after the bank’s new forward guidance, since nobody really expected BOJ’s quantitative easing to end this year or next year. Uchida believed the view about the yen will weaken as a result of the bank’s forward guidance is fading.

As regards to how long BOJ intends to keep its rates unchanged, Deputy Governor Masayoshi Amamiya stated that the bank had no specific time-frame, although it signaled the possibility of taking more steps to tackle the increasing cost of easing on parts of the economy.

GBP/USD Drops after BoE Rate Hike

The British pound also edged lower against the US dollar on Thursday, despite the Bank of England (BoE) hiking its interest rates to their highest level for nearly 10 years.

The pound slipped 0.6 percent to 1.3046 against the greenback, even with members of the nine-strong Monetary Policy Committee (MPC) voting unanimously to the lift rates from 0.50 percent to 0.75 percent.

BoE has stick with 0.50 percent level for the past decade except for the 15 months after the Brexit vote when the rates were pushed even lower.

Majority of the economists did not saw a 9-0 vote, as they had expected a 7-2 vote approving the rate hikes.

In addition, minutes of the bank’s meeting indicated there would be more hikes to come as policymakers aim to bring inflation back to target, but they underscored the process would be gradual and limited.

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