Fed comments on inflation fail to lift dollar

LONDON: The dollar erased early gains yesterday after Federal Reserve (Fed) comments about rising inflation this year failed to lift the currency from near its three-year lows.

After its worst monthly performance since mid2016, the dollar rose in Asian trading before falling back, with traders preparing for economic data due today.

The dollar has struggled this year as expected monetary policy tightening in other parts of the world, along with stronger global economic growth, encouraged investors to put more of their money elsewhere, particularly the eurozone.

The Fed left interest rates unchanged on Wednesday but said inflation is likely to accelerate this year, bolstering expectations rates will continue to rise under its incoming chairman, Jerome Powell.

Against a basket of currencies, the dollar was flat on the day at 89.103 at around mid-day. It touched a three-year low of 88.438 earlier this week. Against the euro, the dollar was down 0.1% at US$1.2429.

The dollar did hold on to its gains against the yen. It edged up 0.5% to ¥109.725, moving away from a four-month low of ¥108.28 plumbed last Friday.

Against the pound, the dollar also fell, reversing those earlier gains after the Fed meeting.

The dollar did gain 0.8% against the Australian dollar to 79.97 cents after a recent run-up in the Australian currency came to and end.

Earlier, in Washington, the Fed, citing solid gains in employment, household spending and capital investment, said it expected the economy to expand at a moderate pace and the labour market to remain strong in 2018.

“Inflation on a 12-month basis is expected to move up this year and to stabilise” around the Fed’s 2% target over the medium term, the central bank said in a statement following a two-day policy meeting, the last under Fed chair Janet Yellen.

It also said its rate-setting committee had unanimously selected Powell to succeed Yellen, effective tomorrow.

The Fed, which raised rates three times last year and in December forecast three more hikes for this year, said on Wednesday it expected “further gradual” rate increases will be warranted. The target range for the federal funds rate currently is 1.25% to 1.50%. – Reuters