Published: Sun, March 19, 2017
Finance | By Laverne Griffith

USA dollar squeezed by cautious Fed

USA dollar squeezed by cautious Fed

The greenback had weakened broadly after the Fed's policy statement was seen as less hawkish than expected by sticking to projections of three total rate hikes in 2017 and not four as some traders had hoped for.

A widely anticipated USA interest rate hike combined with a dovish outlook for the future path of rates lifted emerging stocks to 20-month highs on Thursday but also prompted a number of developing central banks to tighten monetary policy.

The central bank on Wednesday raised rates by a quarter point to 0.75-1.00 percent, responding to the continued strength in the labor market and a pick up in inflation.

Gold rose on Friday and was on course for its first weekly gain in three as the US Federal Reserve's cautious message on interest rates left the dollar around five-week lows, making bullion cheaper those holding other currencies.

Nevertheless, since the start of the year investors have traded French government debt at a heavier discount from ultrasafe German bonds, which means they are still distrustful of polls after last year's decision by Britain to leave the European Union and Donald Trump's victory in the US, both of which came as a surprise.

Eastern Time, followed by Yellen's press conference at 2:30 p.m. Investors have priced in expectations of a rate hike, but will watch to see what Fed Chairwoman Janet Yellen will say about rates moving forward and her assessment of USA and global growth.

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The two-year Treasury yield rose to 1.31% from 1.30%, and the 30-year yield rose to 3.13% from 3.11%.

Indonesia's central bank, also scheduled to release its latest decision on Thursday, is expected to keep its benchmark interest rate unchanged in a bid to spur economic growth. By taking the low set just after the Fed's rate hike in December up to the high set in latter-February, and we can get a series of levels to work with.

Gold rose $2.90 to $1,230.00 per ounce. The pullback came before the Federal Reserve policy decision, due at 6 p.m. London time, or 2 p.m.

Holdings of the world's largest gold-backed exchange-traded fund, New York-listed SPDR Gold Shares (GLD), fell 0.28% on Thursday, the first outflow this week. The precious metals had lost Rs 400 in the last two days.

Expectations are such that markets will react badly if Fed chief Janet Yellen fails to deliver on a 0.25-point rate rise, or even if she signals too much Fed caution moving forward.

At German lender Commerzbank AG, currency analyst Antje Praefcke also said that "the euro seemed unimpressed" Thursday, but warned that the euro remains vulnerable because "political risks in the eurozone remain high with a view to the French elections".

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