Dollar slips from 4-mth high, awaits fresh catalysts after Fed

Dollar slips from 4-mth high, awaits fresh catalysts after Fed

The change in the regulator's statement is key because it is believed that such a level of inflation is healthy and is a signal to continue the policy of raising interest rates.

"Inflation on a 12-month basis is expected to run near the committee's symmetric 2% objective over the medium term", the Fed said.

The Fed also said while growth of household spending moderated from its "strong fourth-quarter pace, business fixed investment continued to grow strongly". Hiring has been strong, with employers adding 202,000 jobs per month on average this year. It omitted earlier language that the economy has strengthened in recent months. The Fed's preferred "core" inflation measure, known as PCE, which filters out volatile food and fuel prices, was within spitting distance of the Fed's 2 percent target in March.

The Federal Reserve kept its benchmark interest rate unchanged Wednesday but noted that inflation is nearing the Fed's 2 percent target rate after years of remaining undesirably low.

In a reaction to the policy statement, USA stocks pared their early losses, but ended down.

On the back of recent rise in inflation and global oil prices, the Dollars index rose around 3.3% from the lows of April.

The question remains how quickly and high Jay Powell, the Fed chairman, and his colleagues boost borrowing costs as they attempt to prevent the United States from overheating while keeping the economy moving at a steady pace.

More news: Before Discussing Big Deal, CEO Sings 'We're in the Money'

The committee made the statement following a two-day meeting. "The committee expects that economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate".

A related question for Mr. Powell and his colleagues is how the Fed would respond if inflation rises above the 2% target, which has scarcely happened since the central bank formally adopted it in 2012. However, few market participants and analysts expect to see positive results coming from this meeting.

Combined with US economic growth and low unemployment, stronger inflation will likely encourage the Fed to maintain its pace of gradual rate increases this year.

The survey-based consumer price index, a more widely watched inflation gauge, was up in April by 2.4% for the previous 12 months. Still, there are enough factors (such as the Fed's looming June rate hike, improving US economic conditions, and rising US 10-year treasury yields) as well as uncertainty (primarily trade talks between US-China) to support the US dollar. Yesterday, gold prices were higher at the outset of the day, but gave up most of their gains by the end of the day.

We think this means there is a good chance we could see a rebound in Friday's nonfarm payrolls number following March's six month low. USA joblessness hasn't been at that level since the 1950s, and no one is quite sure what that would do to inflation or financial stability.

On growth, they remained pretty much optimistic... Executives at some big American companies are getting unsettled by Donald Trump's sabre-rattling over trade. The DXY Index was trading at 92.36 at the time this report was written.

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