June 10, 2020 / 12:47 AM / 2 months ago

Dollar sinks to three-month lows as Fed keeps easing policy

NEW YORK (Reuters) - The dollar extended losses, dropping to a fresh three-month low against a basket of major currencies on Wednesday after the Federal Reserve made no policy changes, as expected, and pledged to continue its asset purchases aimed at stabilizing a U.S. economy that has been ravaged by the novel coronavirus.

FILE PHOTO: U.S. dollar notes are seen in this November 7, 2016 picture illustration. Picture taken November 7. REUTERS/Dado Ruvic/Illustration

The Fed also did not announce any measures to cap the rise of bond yields, as some has speculated.

In a press briefing, Fed Chairman Jerome Powell said the committee did discuss controlling the yield curve but said its effectiveness remained an “open question.”

The greenback fell to three-month troughs against the euro, sterling and Swiss franc after the Fed statement. It slid to a three-week low versus the yen.

The Fed, in its statement, on Wednesday after a two-day meeting, repeated its promise of continued extraordinary support for the economy as policymakers projected a 6.5% decline in gross domestic product this year and a 9.3% unemployment rate at year’s end.

It also promised to maintain bond purchases at “the current pace” of around $80 billion per month in Treasuries and $40 billion per month in agency and mortgage backed securities.

“This is consistent with what the market pretty much expected, that the Fed wouldn’t do anything,” said Marc Chandler, chief market strategist, at Bannockburn Forex in New York. Chandler had expected the Fed to announce a yield control policy, but thought that the U.S. central bank could announce it by the end of the summer.

He added that the Fed’s growth forecasts suggested a V-shaped recovery.

Overall, Chandler said the Fed statement showed that the dollar is still headed lower.

In mid-afternoon trading, the dollar fell about 0.4% against a basket of major currencies to 95.882 =USD, after earlier sliding to 95.714, a level not seen since mid-March.

The euro EUR=EBS, the pound GBP=D3 and the Swiss franc CHF=EBS all hit fresh three-month highs against the dollar.

The euro rose as high as $1.1422, sterling reached $1.2812, with the dollar hitting a three-month low of 0.9425 franc versus the Swiss currency.

The dollar also fell against the yen to a three-week low of at 106.99 JPY=EBS, and was last down 0.6% at 107.08 yen.

Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci and Cynthia Osterman

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