© Reuters. FILE PHOTO: U.S. dollars are counted out by a banker at a bank in Westminster
By Eimi Yamamitsu
TOKYO (Reuters) – The dollar firmed against major currencies on Thursday following the U.S. Federal Reserve’s upbeat assessment of the economic recovery and as its increased tolerance for higher inflation pushed Treasury yields higher.
At its policy meeting, the Fed pledged to keep rates near zero until at least the end of 2023 when the labour market reaches “maximum employment” and inflation is on track to “moderately exceed” the 2% inflation target.
The Fed also expects economic growth to improve from the coronavirus-induced drop they projected in June.
Against six major currencies, the rose about 0.32% to trade at 93.493 () and changed hands at 1.1763 against the euro, () which briefly hit a one-month low.
The greenback initially fell after the Fed’s announcement and weaker-than-expected U.S. retail sales data, but swung into positive territory after Chair Jerome Powell’s comment on the economic outlook.
Broad dollar buying followed after the benchmark rose above 0.7% overnight, a reaction resembling that of the Fed’s Jackson Hole symposium last month, said Mitsuo Imaizumi, chief FX strategist at Daiwa Securities.
“It’s the same reaction the market had when Fed Chair Powell introduced a new framework last month, and longer-term yields went up after the announcement. Based on the higher interest rates, I think people are feeling they won’t be able to sell the dollar,” he said.
Analysts said there is a risk of a slowdown in economic activity unless more fiscal stimulus is provided.
“Besides the presidential election, I think the focus will be on the U.S. fiscal support, which Powell also said is essential,” said Shinichiro Kadota, senior strategist at Barclays (LON:). “The Congress is still struggling with stimulus talks, and markets are eyeing if that would be resolved.”
Among Asian currencies, the Australian dollar
The Bank of Japan kept its monetary policy steady on Thursday and said the country’s economy “remains in a severe state but has started to pick up,” suggesting no immediate stimulus was needed to support activity.
The policy decision came after Yoshihide Suga, a long-time aide of Shinzo Abe who pledged to continue “Abenomics” to recover employment, was officially elected as Japan’s new prime minister on Wednesday.
Market participants will focus on BOJ Governor Haruhiko Kuroda’s remarks about how the central bank would coordinate monetary policy with the new Suga administration.
The safe-haven Japanese yen
The focus for the British pound is now on Brexit tensions, following the government’s deal on Wednesday to avert a rebellion in Prime Minister Boris Johnson’s own party, giving parliament a say over the use of post-Brexit powers.
The pound was last at $1.2932
Against the euro, it changed hands at 0.9098 pence per euro, near a 5-1/2 month low hit earlier this week ().
The Bank of England is likely to signal that it is getting ready to pump more stimulus into Britain’s coronavirus-hit economy at its policy decision due later in the day.