3 Min Read
* Fed statement seen dovish, affirms "lower for longer" theme
* Fed slashes U.S. growth forecast
* BoE minutes reduce rate-hike bets (Recasts with Fed decision, changes byline, updates prices, adds comment)
By Gertrude Chavez-Dreyfuss
NEW YORK, June 18 (Reuters) - The dollar retreated against the euro and the yen on Wednesday as the Federal Reserve struck a dovish tone in its post-meeting statement, slashing its forecast for economic growth and suggesting long-term rates could be lower than previously indicated.
Investors were expecting the Fed to upgrade its assessment of the U.S. economy in the wake of some better-than-expected numbers following weather-driven struggles in the first quarter.
That didn't happen though as the Fed cut its forecast for U.S. economic growth to a range of between 2.1 percent and 2.3 percent for 2014 from an earlier forecast of around 2.9 percent
"The statement was largely dovish." said Mark McCormick, currency strategist at Credit Agricole in New York. "People were expecting the Fed to acknowledge the firmer inflation prints and the drop in the unemployment rate."
The Fed, as expected, reduced its monthly asset purchases from $45 billion to $35 billion a month, divided between $20 billion of Treasury securities and $15 billion of mortgage-backed debt.
In afternoon trading, the dollar was down slightly against the yen at 102.12 yen, while the euro was up 0.1 percent versus the greenback at $1.3562.
Prices in the futures market were consistent with the view that the Fed will start raising rates by the middle of next year.
More importantly, the Fed lowered its projections for long-term interest rates. The median projection was for a long-term federal funds rate of around 3.75 percent, compared to 4 percent in March.
"The bond market had largely priced this in via the spring bond rally," said Anthony Valeri, investment strategist, at LPL Financial in san Diego.
"Offsetting the drop in the long-term fed funds rate was an increase in short-term rate hike expectations. On balance, this should slightly reinforce the lower for longer theme."
Earlier, the Bank of England released minutes from its June 4-5 meeting, which showed members wanted to see more evidence of economic slack being absorbed before raising rates. That news weakened the pound against the dollar and the euro.
The tone of recent comments by policymakers, including BOE Governor Mark Carney last Thursday, had bolstered expectations that one of the committee members may have voted for an increase earlier this month.
Sterling last traded up 0.1 percent at $1.6974, while the euro gained 0.1 percent against the pound to 79.94 pence. (Additional reporting by Richard Leong; Editing by Chizu Nomiyama)