FOREX-Dollar wobbles after Fed pushes back against rate hike speculation

* Dollar index sheds 0.5% after FOMC
* Fed sees faster economic recovery but no rate hike through
2023
* Bond yields stuck near 13-month high
* Graphic: World FX rates https://tmsnrt.rs/2RBWI5E

By Hideyuki Sano
TOKYO, March 18 (Reuters) - The U.S. dollar was on the
defensive on Thursday after the Federal Reserve signalled it was
in no hurry to raise interest rates through all of 2023 even as
it saw a V-shaped recovery in the world's largest economy.
Investors dumped the dollar and rushed to more
risk-sensitive currencies as Fed Chairman Jerome Powell, true to
his dovish credentials, dampened speculation a stronger economic
outlook could propel the central bank to wind back its stimulus.
"It was the usual Jay after all," said Bart Wakabayashi,
Tokyo Branch Manager of State Street Bank.
"Markets have been thinking the Fed will raise rates perhaps
once next year and a couple of more times in 2023... There will
remain questions over whether the Fed can control inflation."
The dollar index dropped 0.5% to its lowest levels in two
weeks and last stood at 91.400 =USD .
The U.S. central bank now sees the economy growing 6.5% this
year, which would be the largest annual jump in gross domestic
product since 1984 and a whopping 2.3 percentage points upgrade
from its projection just three months ago. Inflation is now expected to exceed the Fed's 2% target to
2.4% this year, though Fed officials think it will move back to
around 2% in subsequent years, thus allowing them to keep
interest rates at current low levels.
The Fed's so-called "dot plots" put policymakers' median
projection of interest rates at zero percent in 2023, even
though seven of 18 officials now expect higher rates in 2023,
compared to five in December.
The dollar slipped to 108.87 yen JPY= , off Monday's
nine-month top of 109.365 while the euro rose to $1.1980 EUR= ,
edging near last week's high of $1.1990.
The 10-year U.S. Treasuries yield gyrated wildly before
settling around 1.648% US10YT=RR for now, having hit an
13-month high just before the Fed's announcement.
Traders, however, see potential for further market
volatility.
"While our view remains that movements in yields through the
latter part of February and into March have been akin to a
‘taper-less tantrum', there is potential for further market
volatility, perhaps around 'data tantrums' over the coming
months," wrote Gurpreet Gill, macro strategist at Goldman Sachs
Asset Management in London.
The British pound traded at $1.3970 GBP=D4 , having gained
about 0.5% overnight.
The Bank of England is expected to keep its benchmark Bank
Rate at a historic low of 0.1% and its bond-buying programme
unchanged at 895 billion pounds later in the day.
"Similar to what we've seen from the Fed, the Bank of
England will talk up their prospects of the economy relative to
where we've been, but at the same time emphasize that we're
still a long way from full recovery," said Rodrigo Catril,
senior currency strategist at National Australia Bank in Sydney.
"We expect the BoE to gently warn against the shift in
market pricing from a rate cut to around 50bps of hikes over the
next three years."
The Australian dollar rose to a two-week high of $0.78105
AUD=D4 whereas its New Zealand counterpart briefly lost
momentum, after the country posted a surprise contraction in GDP
in the final three months of last year. The kiwi dollar last traded at $0.7247 NZD=D4 .
Elsewhere, the Brazilian central bank delivered its first
interest rate hike in nearly six years with a
larger-than-expected 75 basis point increase to 2.75%, and
flagged a similar move in May to fight inflation. There was no reaction in the Asian morning as the Brazilian
real BRL= is hardly traded offshore, with few quotes
available, traders said.
Bitcoin BTC=BTSP held firm at $58,490, having bounced from
Tuesday's one-week low of $53,221.

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