[LONDON] The dollar rose on Thursday (Mar 20) after the Federal Reserve indicated it was in no rush to cut rates further this year due to uncertainties around US tariffs, while the pound remained lower after the Bank of England kept rates steady.
The Swiss franc weakened slightly after the Swiss National Bank lowered its policy rate to 0.25 per cent, while the Swedish crown was soft after its central bank maintained its interest rate.
US policymakers projected two quarter-point interest rate cuts were likely later this year, the same median forecast as three months ago, even as they expect slower economic growth and higher inflation. On Wednesday, the Fed held its benchmark overnight rate steady in the 4.25 per cent-4.50 per cent range.
“We’re not going to be in any hurry to move,” Fed Chair Jerome Powell said. “Our current policy stance is well-positioned to deal with the risks and uncertainties we face.”
Powell’s comments and the Fed statement underscored the challenge faced by policymakers as they navigate President Donald Trump’s plans to levy duties on imports from US trading partners and the impact on the economy.
“There is probably not enough in the Fed communication to build fresh USD shorts,” said ING FX strategist Francesco Pesole.
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Traders are pricing in 63 basis points of Fed easing this year, about two rate reductions of 25 bps each and around a 50 per cent chance of a third. Markets are fully pricing in the next cut in July, LSEG data showed.
The dollar index, which measures the US currency against six others, was 0.5 per cent higher at 103.85 but still close to the five-month low of 103.19 touched earlier this week. The euro was down 0.5 per cent at US$1.0849.
The pound trimmed some losses after the BOE held its interest rate steady in line with expectations but warned against assumptions that there would be cuts over the next few meetings, given global economic uncertainty.
Sterling had earlier risen to a more than four-month high of US$1.3015 in early Asian hours before retreating to US$1.2975.
With UK inflation stuck firmly above its 2 per cent target, the BOE has cut borrowing costs by less than the European Central Bank and the Fed since last summer, contributing to the country’s sluggish growth rate.
“In the face of vast uncertainty bearing down on the UK economy’s outlook, rate-setters have rightly chosen to tread cautiously,” said Jeremy Batstone-Carr, strategist at Raymond James Investment Services.
In a busy day for central banks, the Swiss franc weakened slightly against the dollar and euro after the SNB made a fifth successive cut and said it was prepared to intervene in the FX market as necessary.
“The SNB stands out from the other central banks,” said Kirstine Kundby-Nielsen, FX analyst at Danske Bank.
“They still highlight the downside risks to inflation even after cutting today. That’s worth noting.”
Sweden’s central bank meanwhile kept its policy rate at 2.25 per cent, as expected, pushing the crown lower against the stronger dollar and the euro.
Sweden’s crown has been the best performing major currency against the dollar this year on expectations of a ceasefire in Ukraine and improved domestic economic prospects.
The yen was a shade stronger at 148.45 per dollar, a day after the Bank of Japan held rates and warned of heightening global economic uncertainty, suggesting the timing of further hikes will depend on the fallout from US tariffs. The Australian dollar fell 1.1 per cent to US$0.6286 after Australian employment posted a surprise fall in February, ending a strong run of impressive gains, as the red-hot labour market loosened a little, although the jobless rate remained steady.
The New Zealand dollar fell 1.4 per cent to US$0.5736 even as data showed the economy crawled out of a recession and grew at a faster-than-expected pace of 0.7 per cent last quarter, although underlying details were soft. REUTERS
