Currencies: Dollar gains as market digests Fed statement
The dollar rose against other major currencies Thursday, as investors were encouraged by the Federal Reserve’s latest comments on the health of the economy and future monetary-policy tightening.
In a statement Wednesday after a two-day policy meeting, the Fed broached the prospect of “beginning to normalize the stance of monetary policy,” the most direct formal reference to raising rates it has made in years. In a news conference after the meeting, Chairwoman Janet Yellen suggested a move after two meetings is possible, another boon for the dollar, which is expected to rise along with borrowing costs.
Yet the Fed also left unchanged the part of its statement saying rates would remain low for a “considerable time,” a phrase many investors expected the central bank to do away with as the U.S. economy continues on a recovery path.
Currency investors chose to focus on the bigger picture, even if the statement didn’t deliver the kind of hawkish rhetoric many were hoping for, said Omer Esiner, chief market analyst at Commonwealth Securities.
“The Fed is modifying its statement to reflect an improving economic backdrop and is still on target to tighten monetary policy sometime next year,” Mr. Esiner said. “And Yellen did leave the door open for an earlier rate hike.”
The dollar USDJPY, +0.48% was recently up 0.2% against the yen, at ¥119.37. The euro EURUSD, -0.02% was down 0.5% against the buck, to $ 1.2282.
In other currencies, the Swiss franc EURCHF, +0.04% fell against the euro, after the Swiss National Bank surprised investors by pushing rates into negative territory. The SNB’s policy of capping the level of the franc has come under pressure with the recent weakening of the euro, pressuring the Swiss central bank to mimic the European Central Bank’s policy of paying negative rates on deposits. The franc fell back from the SNB’s cap of 1.20 to the euro by 0.2%, trading at 1.2044.
“Price action over the last few days suggests the SNB might have had to purchase material amounts of euros to defend the 1.20 floor, and this may have triggered the move today,” said Beat Siegenthaler, a currency strategist at UBS.