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FOREX-Dollar rallies as cautious Fed clouds rate-cut outlook

Published 19/09/2019, 02:03
FOREX-Dollar rallies as cautious Fed clouds rate-cut outlook
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* Fed Chairman Powell sounds positive on U.S. economy

* Dollar rises to 7-week high vs yen, 3-month peak on Swiss

franc

* Australian employment data eyed as crucial to rates

outlook

By Tom Westbrook

SINGAPORE, Sept 19 (Reuters) - The dollar stood tall on

Thursday after the U.S. Federal Reserve cut rates by 25 basis

points, as expected, but its chairman signalled a higher bar for

future rate cuts.

The greenback touched a seven-week high of 108.47 against

the Japanese yen JPY= and stood just below that in Asian

morning trade. It also rose on the Swiss franc CHF= , hitting a

three-month high, and climbed against other major currencies.

The New Zealand dollar NZD=D3 briefly jumped 0.2% after

June-quarter gross domestic product landed higher than

expectations, before being swamped by a rising greenback. The

Aussie AUD=D3 fell ahead of jobs data due at 0130 GMT.

The U.S. central bank, on a 7-3 vote, lowered the Fed funds

target rate on Wednesday to a range of 1.75% to 2.00% "in light

of the implications of global developments for the economic

outlook."

However, Fed Chairman Jerome Powell described U.S. prospects

as "favourable" and the rate move as "insurance." He did not

rule out future cuts, but his remarks were not as dovish as

markets had hoped for which lifted bond yields and the dollar.

Projections published by the Fed showed policymakers, at the

median, expected rates to stay within the new range through

2020, while futures markets have priced in at least another cut.

"In the short term, this hawkish cut should still see the

dollar well-bid, given that the path of interest rates outlined

by the Fed is not close to that priced into the markets," said

John Veils, Americas FX and macro strategist at BNY Mellon.

"The USD is still the highest-yielding currency in the G10

world, a sign that it is also the least unattractive house in an

increasingly blighted neighbourhood."

The dollar rose 0.3% on the euro EUR= after the Fed

decision and steadied at $1.1027 on Thursday. It gave up some

gains on the pound to hold around $1.2468.

Its strength on the yen may also reduce pressure for further

easing from the Bank of Japan, which meets later on Thursday and

is widely expected to keep rates on hold.

The New Zealand dollar NZD=D3 popped to $0.6332 when

quarterly growth came in a fraction higher than forecasts,

though with year-on-year expansion at its slowest since 2013 the

beat has done little to shift expectations of future monetary

easing there. The Australian dollar AUD=D3 dropped to $0.6811 ahead of

jobs data that is likely to provide a read on the interest rate

outlook.

The Reserve Bank of Australia has indicated that it could

ease again unless employment grows. "An uptick in the unemployment rate likely to push up

expectations for an October RBA cut," ANZ analysts said in a

note. "Risks (are) to the downside," they added

Editing by Jacqueline Wong)

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