US dollar sinks as Fed forecasts slower rate hikes

[NEW YORK] The US dollar dived Wednesday after the Federal Reserve forecast a slower path for future rate hikes and cut its growth outlook for the US economy.

The Fed's policy arm, the Federal Open Market Committee, concluded a two-day meeting with a statement announcing the benchmark federal funds rate would remain at 0.25-0.5 per cent, where it was set in December.

The rate decision was expected, but the overall tone of the FOMC statement, citing the impact of the global slowdown and world markets turmoil, was more dovish than many had anticipated.

The FOMC forecast indicated expectations for just two rate hikes this year; in December, it pointed to four increases.

The US dollar, which was trading higher than the euro minutes before the FOMC policy statement, fell sharply, ending the day down one per cent against the euro at US$1.1226.

The US dollar fell 0.5 per cent against the yen, buying 112.57 yen, and was lower against other major currencies.

"Investors punished the dollar because (Fed Chair) Janet Yellen failed to emphasize that two more rate hikes are expected this year and instead spent the large part of her testimony talking about the troubles in the US and global economy," said Kathy Lien of BK Asset Management.

"The magnitude of the dollar's reaction signals that investors were waiting for a reason to sell dollars," she said.

AFP