The US dollar advanced against major currencies in early trading on Thursday. A positive economic outlook from the Federal Reserve and a shift to tolerating higher inflation boosted Treasury yields, in turn supporting the greenback.
At its policy meeting on Wednesday, the US central bank pledged to keep rates near zero until at least the end of 2023. The statement from the Federal Open Market Committee (FOMC) outlined that it “expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”
At a news conference following the release of the policy statement, Fed Chair Jerome Powell said: “Effectively what we are saying is that rates will remain highly accommodative until the economy is far along in its recovery.”
Upbeat projections showed that the Fed expects the US economy to shrink by 3.5% this year, rather than the 6.5% decline forecast in June, while the US unemployment rate is expected to fall to about 7.6% by the end of the year.
However, Jerome Powell also warned: “Overall activity remains well below its level before the pandemic, and the path ahead remains highly uncertain.”
Both European stocks and US stock index futures weakened on Thursday after investors mulled that the Fed was ‘less dovish’ than expected. Looking at the daily EUR/USD chart we can see that the euro fell to its lowest level against the dollar since August 12th in early Thursday trading, before rebounding.
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