Dollar Rebounds After Fed Raises Rates and Signals More to Come

  • Greenback seen boosted by Fed path, U.S. economy: Savos
  • Inflation, retail sales data prompted earlier dollar slump

The dollar rebounded from an eight-month low after the Federal Reserve raised interest rates for the third time in six months and maintained its outlook for one more hike in 2017.

The Bloomberg dollar index bounced back from a bout of losses earlier Wednesday after Fed officials forged ahead with raising borrowing costs and voiced plans to keep tightening policy even in the face of signs of slowing inflation. Fed Chair Janet Yellen emphasized that some of the factors weighing on inflation will dissipate in coming months and that officials see further hikes as appropriate. The greenback had slumped at the start of the New York session after consumer price and retail sales data missed expectations.

“The balance of risk for traders is to the upside for the dollar,” given the Fed’s guidance and an improving U.S. economy, said Jason Thomas, Los Angeles-based chief investment officer of Savos Investments, a unit of AssetMark Inc., which oversees about $36 billion.

  • EUR/USD fell to an intraday low of 1.1193 amid Yellen’s press conference; EUR losses accelerated as the pair dropped below 1.1247, the midpoint of the day’s range, suggesting some stop-loss sell orders may have been tripped.
    • Risk may be for additional stop-loss selling under 1.1200 even as area near Tuesday’s 1.1185 low was seen to hold bids earlier in the week.
  • “I would consider this a slightly hawkish announcement,” Noelle Corum, a macro analyst at Invesco Ltd.’s fixed-income group in Atlanta, said in an interview. That’s because the Fed outlined balance-sheet plans and signaled its intention to continue tightening.
  • USD/JPY traded as high as 109.87 after the Fed, after stop-loss buy orders tripped above 109.60, with the dollar gaining broad lift as intraday accounts bailed on shorts set earlier in the day when the USD fell below 109.00.
    • USD gain underpinned by modest recovery in UST yields off lows
  • “The greenback has been given some room to recover” after Yellen’s comments on inflation, said Mark McCormick, North American head of foreign-exchange strategy at Toronto-Dominion Bank.
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