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Dollar higher after Fed upgrades economic outlook

NEW YORK (Reuters) - The U.S. dollar gained on Wednesday in choppy trading after the Federal Reserve kept interest rates pinned near zero and said it expects the U.S. economic recovery from the coronavirus crisis to accelerate with unemployment falling faster than the central bank expected in June.

FILE PHOTO: U.S. Dollar and Japan Yen notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

The U.S. central bank said it would keep rates at rock bottom levels until inflation is on track to “moderately exceed” the U.S. central bank’s 2% inflation target “for some time.”

In new economic projections, Fed policymakers at the median see economic growth dropping by 3.7% this year, an improvement from the 6.5% drop projected in June.

“The Fed really underscored its dovish stance and how inflation holds the key to the policy outlook. Overall it was very dovish,” said Joe Manimbo, senior market analyst at Western Union Business Solutions on Washington.

“But what’s keeping a floor under the dollar so far is that the Fed upgraded its economic forecast for GDP for 2020. The new projection is -3.7%. That’s not as bad as (the projection) from June,” he added.

The dollar index against a basket of currencies gained 0.07% to 93.19. The euro fell 0.41% to $1.1797.

Stronger Chinese data for August on Tuesday had weighed on the greenback as investors price for the prospect that other regions will see a faster economic recovery from coronavirus than the U.S.

“I would say the biggest impulse this week was the stronger activity data for the month of August from China, and maybe a bit of ongoing optimism about the vaccine,” said Vassili Serebriakov, an FX strategist at UBS in New York.

The Chinese data showed that industrial output accelerated the most in eight months in August, while retail sales grew for the first time this year.

“People are starting to embrace a new theme, which is that China is managing much, much better than anyone else,” said Davis Hall, head of capital markets in Asia at Indosuez Wealth Management.

The offshore yuan gained to 6.7426, the strongest since May 2019.

The safe-haven Japanese yen hit a two-and-a-half month high of 104.81 against the greenback.

“The main tailwind for the yen is political uncertainty at home. The surprise departure of Abe has put a persistent bid into the yen as Japanese investors pull back on risk,” said Adam Button, chief currency analyst at ForexLive in Toronto.

Japan’s new Prime Minister Yoshihide Suga pledged on Wednesday that he will do his best to protect employment while also countering the coronavirus.

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Currency bid prices at 3:30PM (1930 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Euro/Dollar EUR= $1.1797 $1.1845 -0.41% +5.24% +1.1882 +1.1789

Dollar/Yen JPY= 105.0100 105.4300 -0.40% -3.54% +105.4400 +104.8100

Euro/Yen EURJPY= 123.90 124.91 -0.81% +1.60% +125.0100 +123.8600

Dollar/Swiss CHF= 0.9106 0.9080 +0.29% -5.91% +0.9111 +0.9056

Sterling/Dollar GBP= 1.2949 1.2886 +0.49% -2.34% +1.3006 +1.2876

Dollar/Canadian CAD= 1.3177 1.3181 -0.03% +1.47% +1.3200 +1.3127

Australian/Doll AUD= 0.7286 0.7301 -0.21% +3.77% +0.7345 +0.7286

ar

Euro/Swiss EURCHF= 1.0744 1.0756 -0.11% -1.00% +1.0766 +1.0739

Euro/Sterling EURGBP= 0.9110 0.9190 -0.87% +7.76% +0.9208 +0.9095

NZ NZD= 0.6720 0.6721 -0.01% -0.24% +0.6758 +0.6703

Dollar/Dollar

Dollar/Norway NOK= 9.0355 9.0285 +0.08% +2.93% +9.0560 +8.9714

Euro/Norway EURNOK= 10.6590 10.6990 -0.37% +8.35% +10.7187 +10.6449

Dollar/Sweden SEK= 8.8166 8.7894 -0.13% -5.68% +8.8221 +8.7648

Euro/Sweden EURSEK= 10.4011 10.4150 -0.13% -0.65% +10.4320 +10.3870

Additional reporting by Julien Ponthus in London; Editing by Sandra Maler and Nick Zieminski

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