Dollar fell after Fed failed to provide a timetable for tapering its quantitative easing

Dollar fell after Fed failed to provide a timetable for tapering its quantitative easing

The dollar weakened after the Federal Reserve said in an upbeat policy statement on Wednesday that the economy was recovering despite an increase in COVID-19 infections. The statement did not set a timetable for tapering Fed asset purchase.

In a unanimous statement, Fed policymakers also said they would continue to discuss when to reduce the Fed’s $120 billion-a-month bond-buying program, a precursor to an eventual rate hike.

“The statement dropped hints at the conversation around tapering large scale asset purchases, but did not commit to any future plans beyond continuing to assess the situation,” said James Marple, senior economist at TD Economics.

“We expect more heated discussions at the Jackson Hole summit in late August, with tapering likely to be reflected in the September statement, along with new economic forecasts,” Marple added.

The dollar index, which measures the greenback against a basket of six currencies, was down 0.149% at 92.324, after initially rising to 92.766 following the Fed statement.

“Going into the FOMC decision today, the market was tilting a little bit toward a hawkish dollar and I think some slight changes, in my opinion, substantiates that hawkish tilt,” said Minh Trang, senior FX trader at Silicon Valley Bank.

The British pound was up 0.15% at 1.3904, close to a two-week high, with analysts blaming the strong tone on a drop-in COVID-19 cases in the UK over the preceding seven days.

The Chinese yuan has recovered from three-month lows recorded on Tuesday, when it suffered its worst daily losses since October, as the country’s stock market has calmed after a tumultuous few days.

Bitcoin rose 2.3% to $40,381.88, two days after breaking through $40,381.88 for about six weeks.

Damon Harrison
Market Analyst, IPG Group