Dollar dips after Fed fails to provide taper timeline

·2 min read
FILE PHOTO: A picture illustration shows U.S. 100 dollar bank notes

By John McCrank and Saqib Iqbal Ahmed

NEW YORK (Reuters) - The dollar eased on Wednesday after the U.S. Federal Reserve said the economic recovery is on track despite a rise in COVID-19 infections in a policy statement that was upbeat but did not set a timeline for tapering Fed asset purchase.

While daily U.S. COVID-19 infections have quadrupled since the last Fed meeting in June, the central bank indicated it still had faith that an ongoing vaccination drive would "reduce the effect of the public health crisis on the economy" and allow a robust reopening to proceed.

Fed policymakers, in a unanimous statement, also said they were moving ahead with discussions about when to reduce the central bank's $120 billion in monthly bond purchases, a precursor to eventually raising interest rates.

"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 a more fulsome discussion at the Jackson Hole summit in late August and plans around tapering may be reflected in the September statement when new economic forecasts will also be released," Marple added.

The dollar index, which measures the greenback against a basket of six currencies, was 0.149% lower at 92.324, easing off after initially spiking up to 92.766 after the Fed statement was released.

The greenback has rallied for the past month, with the dollar index up about 2.3% since a hawkish shift from the U.S. central bank in its June meeting.

"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 language on COVID-19 and the effect on the economy "has been slightly, slightly softened a little bit from the Fed's perspective," Trang added.

Elsewhere, the British pound was up 0.15% at 1.3904, holding near a two-week high, with analysts attributing its firm tone to COVID-19 cases in Britain declining over the past seven days.

The Chinese yuan pulled away from three-month lows hit on Tuesday, when it experienced its biggest daily losses since October, after the country's stock market stabilized following a bruising couple of days.

The yuan's bounce was modest, however, and the risk-sensitive Australian and New Zealand dollars were both subdued as sentiment remained fragile.

Bitcoin was up 2.3% at $40,381.88, having broken above $40,000 two days ago for the first time in about six weeks, as short sellers bailed out and traders drew confidence from recent positive comments about the cryptocurrency by high-profile investors.

(Reporting by John McCrank and Saqib Iqbal Ahmed in New York; Editing by Catherine Evans, Will Dunham and Jonathan Oatis)

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