Dollar hits 2 year high vs euro

Dollar hits 2 year high vs euro

The dollar rose to a two-year peak against the euro and hit a two-month high versus the yen on Thursday as U.S. Federal Reserve Chairman Jerome Powell ruled out a lengthy easing cycle after delivering the first rate cut since the financial crisis.

In a widely expected move, the U.S. central bank cut rates by 25 basis points to shore up the economy against risks including trade friction.

At a press conference after the Fed's decision, Powell said "it's not the beginning of a long series of rate cuts." At the same time, he said, "I didn't say it's just one rate cut."

Traders still see one more rate cut this year. Powell's remarks, however, slashed expectations the Fed is prepared to lower rates well into next year.

"The comments by Powell were not particularly dovish, so this is confirmation that this is a small insurance cut," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

"This outcome limits the dollar's downside from here. Rate cuts will be on the small side, but this still strengthens the case for a prolonged U.S. economic expansion, which is positive for the dollar long term."

The dollar index against a basket of six major currencies was last quoted at 98.516, close to a two-year high of 98.683 reached on Wednesday.

The euro fell 0.2% to $1.1052 early in Asian trade to reach the lowest since May 16, 2017.

While financial markets had widely expected the Fed to reduce its key overnight lending rate by 25 basis points to a target range of 2.00% to 2.25%, many traders had looked for clearer confirmation of more rate cuts from Powell.

A day prior to the Fed's meeting, traders had forecast a 35% chance of three cuts by the end of the year. On Wednesday afternoon that figure had fallen to 12%, according to CME Group's FedWatch tool.

Against the yen the dollar rose 0.4% to a two-month high of 109.165 yen.

Elsewhere in currency markets, sterling fell against the dollar toward a two-year low on the growing risk of a no-deal Brexit, but the focus will shift to a Bank of England meeting later on Thursday.

Economists polled by Reuters are almost certain that the BoE's Monetary Policy Committee will vote 9-0 to keep rates on hold at 0.75%. But it is less clear how Governor Mark Carney will tackle the challenge posed by the prospect of Britain leaving the European Union without provisional trading agreements.

Sterling was down 0.3% at $1.2142, near a two-year low of $1.2120. Sterling tumbled 4.2% last month, its worst monthly performance since October 2016, due to growing speculation Britain will go through with a no-deal Brexit. (Reuters)

Source: www.businessworld.ie