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Dollar Takes Back Chunk Of Post-Fed Losses

Norges Bank raises rates, Bank of England leaves monetary policy unchanged

The U.S. dollar climbed in early Thursday trading, retracing some of its losses from the previous session that it incurred after the Federal Reserve reiterated its dovish monetary policy stance.

The U.S. central bank cut its expectations for 2019 interest-rate increases from two to zero, downgraded its economic outlook as Chairman Jerome Powell stressed that it was a “great time” to be patient. The greenback, measured by the ICE U.S. Dollar Index , in response fell 0.7% and recorded its worst one-day percentage drop since Jan. 25 on Wednesday, according to FactSet.

In early Thursday trading, the gauge was up 0.5% at 96.190.

“The Fed’s second dovish surprise in a row was meant to calm markets. However, we think it will likely do just the opposite,” said Win Thin, global head of currency strategy at Brown Brothers Harriman. “Markets often need to see confidence emanating from policy makers to feel confident as well. How can the Fed justify moving from ‘a long way from neutral’ back in the fall to the current stance that rates may go up or down? We simply do not believe the fundamental picture has changed that much.”

Still, for now, interest rate differentials still favor the dollar, Thin said. The Fed pressing pause didn’t make other central banks’ rates go up. The European Central Bank and Bank of Japan are still at their post-financial crisis lows, for example.

In U.S. economic data, jobless claims for the week ended March 16 came in at 221,000, just below expectations, while the Philly Fed index for March jumped to 13.7, exceeding expectations of 3. Leading economic indicators for February are due at 10 a.m. Eastern.

Elsewhere, Norway’s central bank raised its key interest rate to 1% from 0.75% before, as expected. The Norwegian krone climbed to its best level in six-weeks in response, with one dollar last buying 8.4380 krone, down 0.8%. The krone was the best G-10 performer against the dollar on Thursday.

In other central bank news, the Bank of England left interest rates unchanged and cautioned on the risk of Brexit. The central bank said that U.K. economic data had already been mixed but the outlook remained reliant on the nature and timing of Brexit.

The British pound didn’t react much to the BOE statement, as it was widely expected. Sterling was last weaker at $1.3140, compared with $1.3194 late Wednesday.

Uncertainty continues to reign in regard to Brexit, with the U.K. is still set to leave the European Union in eight days and no deal in place to govern its future relationship with the EU. A two-day summit of EU leaders in Brussels will tackle U.K. Prime Minister Theresa May’s request for a three-month delay to the deadline. May wants to put her deal, or an amended version of it, to a vote for a third time next week.

Brexit Brief:EU tells Theresa May — it’s deal, or no deal

The euro pared some of the last session’s gains and slipped to $1.1391 from $1.1415, largely driven by the swing in the dollar.

Source: MarketWatch

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