The dollar has been under renewed pressure across all the majors during the past 24 hours as failure to meet Fed expectations triggered a shift in positioning.
There were no surprises with the Fed’s actual decision as the bond-purchasing programme was cut by a further US$10bn to US$35bn. There was a slightly more optimistic tone surrounding the economic outlook and a small upward adjustment to the interest-rate projections from individual members. The Fed still remained committed to a very expansionary policy and cut longer-term growth forecasts slightly.
After showing initial resilience, the dollar came under sustained pressure following Fed Chair Yellen’s comments. Recent prices data was described as noisy and concerns over the risks of higher inflation were downplayed while there she stated that there was still significant under-utilisation in the labour markets.
A generally dovish tone hurt the dollar, especially as markets had been positioned for more hawkish remarks, with the apparent lack of concerns surrounding inflation particularly damaging. Benchmark US Treasury bond yields retreated to around 2.55% from a recent high above 2.62%.
With the market wrong-footed, there was a significant slide in the dollar with EUR/USD pushing towards the 1.3600 area while USD/JPY dipped below 102.00.
Asian markets on Thursday were dominated by dollar vulnerability and fresh interest in carry trades with the dovish tone from G3 central banks encouraging greater interest in high yields and high risk. In this context the Australian dollar moved sharply higher with AUD/USD peaking around 0.9430 from lows near 0.9320 around the Fed statement.
Monetary policy was left unchanged by the Swiss National Bank and the 1.20 Euro minimum level was also maintained with the bank reiterating its pledge to defend the peg with utmost determination.
GBP/USD again pushed to challenge resistance above 1.7000, bolstered by expectations of Bank of England tightening as well as weak dollar sentiment. The latest UK retail sales data was in line with expectations with a 0.5% May decline following a revised 1.0% gain previously. GBP/USD remained firmly on the offensive and pushed to challenge a key resistance area near 1.7050.
US jobless claims were slightly lower than expected at 312,000 from 318,000 previously while the Philly Fed index strengthened to a nine-month high of 17.8. Although the dollar found support at lower levels, it was unable to stage a significant recovery.