US dollar down on dovish Fed

22 March, 2019

The AUD/USD may be in for a rough time as the year unfolds with the US Federal Reserve finally admitting that the economy was not as strong as they earlier predicted which has forced them to put a hold on any further interest rate hikes this year and leave open the possibility of a rate cut should the need arise.

Unemployment in the US is now predicted to hit 3.7 percent which is slightly higher than predictions made in December while inflation is expected to come in at 1.8 percent which is slightly lower than the 1.9 percent forecasted and well short of the Feds target rate of 2 percent.

As predicted yesterday, the Fed kept interest rates on hold but the following monetary statement was much more dovish than analysts had predicted which the US central Bank blamed on household spending and business investment

“Growth of economic activity has slowed from its solid rate in the fourth quarter,” the Fed said.

“Recent indicators point to slower growth of household spending and business fixed investment in the first quarter ... overall inflation has declined.” They added.

US Fed President Jerome Powell even left the option on the table for a rate cut, depending on how thing pan out as the year unfolds which many saw as not possible just a few weeks ago

This factor is likely to weigh on the US dollar in the Forex market over the coming months

“The data are not currently sending a signal that we need to move in one direction or another, in my view, it’s a great time for us to be patient.” Mr Powell said

This now brings to an end the current rate of interest rate hikes from the Fed and leaves the benchmark interest rate around 1 percent lower than recent historical values

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