Dollar on defensive after Fed comments, sterling advance

February 27, 2019

By Shinichi Saoshiro

TOKYO (Reuters) – The dollar remained near a three-week low on Wednesday after Federal Reserve Chairman Jerome Powell reiterated that the central bank would stay patient on monetary policy and as the pound rallied.

The dollar index against a basket of six major currencies stood at 96.056 after shedding 0.4 percent overnight, when it stooped to 95.948, its lowest since Feb. 5.

Powell said on Tuesday that rising risks and recent soft data were unlikely to prevent solid growth for the U.S. economy this year, but that the Fed would remain “patient” in its decisions on further interest rate hikes.

“The dollar’s fall was a little puzzling as Powell’s comments did not offer fresh insight. But the market was in a state where the dollar was sensitive to potential bearish factors, and the strong pound also weighed,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities.

Sterling had rallied on Tuesday after British Prime Minister Theresa May offered lawmakers the chance to vote on delaying Brexit, opening up the possibility of avoiding a chaotic no-deal departure from the European Union.

The pound was up 0.1 percent at $1.1361 after surging more than 1 percent overnight to a five-month peak of $1.3288.

The Australian dollar was a shade higher at $0.7195 and up for the fourth straight session.

The Aussie was hurt at the start of February after the Reserve Bank of Australia opened the door for an interest rate cut. But the currency has rebounded nearly 2 percent from this month’s low of $0.7054 plumbed on Feb. 12.

“Differences in monetary policies are less of a driver for currencies after the Fed shifted to a more dovish stance, prompting other central banks to follow. Risk appetite is now a key incentive, and currencies like the Aussie benefit from ‘risk on,’” said Yamamoto at Mizuho Securities.

Global equities have performed strongly this week – MSCI’s world stock index advanced to a five-month peak – on factors including ebbing concerns toward U.S.-China trade tensions.

The dollar was little changed at 110.56 yen after shedding 0.4 percent the previous day. The greenback rose to a two-month high of 111.24 on Monday but has met firm technical resistance near the 200-day moving average 111.30.

(Editing by Sam Holmes)

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