Summary Fed Reserve sent dollar tumbling with a surprisingly dovish forecast for growth and interest rates.
NEW YORK (AFP) - The Federal Reserve sent the dollar tumbling Wednesday with a surprisingly dovish forecast for growth and interest rates, even as it took a solid step toward a midyear rate hike.
After having tempted talk of parity with the euro just three days ago, the dollar whiplashed from $1.059 per euro to as low as $1.101 when the Fed indicated that rates would rise much more slowly over the next two years than they had forecast in December.
The dollar dropped from 121.34 yen to as low as 119.57 yen, before rebounding slightly.
The Federal Open Market Committee projected a federal funds rate of just 0.5-0.75 percent for the end of 2015, compared with 1.0 percent previously, and 1.75-2.5 percent at the end of 2016 instead of 2.5 percent.
It also cut its US economic growth rates, even as it readied for a possible rate rise as early as June, and showed clear concern about how the strong dollar was hurting exports.
"The Fed did not have to say it. The forecasts tell the story. The FOMC cares about the dollar," said Jens Nordvig at Nomura.
However, Nordvig asked, is that "enough to change the trend" of the dollar s rise?
Nick Bennenbroek of Wells Fargo Securities said it will likely only be a blip in the strengthening of the greenback.
"Our view remains consistent with US dollar strength over the medium term. The economic backdrop is still marked by relatively solid US growth compared to relatively sluggish global growth, and is still marked by expected Federal Reserve tightening compared to actual global monetary easing," he said.
"Those divergences still exist, even if that contrast is not as stark as it was previously."
