US dollar holds steady amid steep US stocks selloff

[NEW YORK] The US dollar was little-changed on Wednesday despite a sharp US stocks selloff after a bearish US oil stockpiles report raised concerns about the strength of the economy.

The greenback resisted the turmoil on Wall Street, where the broad-market S&P 500 shed 2.5 per cent, and volatility on the oil market.

The government reported Wednesday an increase in US commercial inventories of oil and petroleum products last week, pushing Brent crude oil briefly below US$30 a barrel for the first time since April 2004.

The euro was slightly higher on the dollar, at US$1.0874, while the greenback slipped slightly to 117.72 yen. The pound dropped to US$1.4403.

"What's impressive with the US dollar is the resilience it has shown even when historically correlated markets like the two-year US Treasury yield have fallen in anticipation that the Fed will not be hiking (interest rates) as many times as previously thought," said Tyler Yell at DailyFX.

A lackluster Beige Book report from the Federal Reserve on current US economic conditions appeared to wipe out any expectation that the Fed could raise interest rates at its next monetary policy meeting in two weeks.

Bond market prices suggest two, or perhaps only one rate hike this year after the Fed's historic December decision to lift rates for the first time in more than nine years, whereas Fed officials have signaled four increases.

The Federal Open Market Committee will hold its first policy meeting of the new year on January 26 and 27.

According to the Beige Book, nine of the Fed's 12 districts had reported increased economic activity that was either "moderate" or "modest" and the outlook for future growth from persons surveyed was "mostly positive" in six districts.

"The remarks from the Beige Book suggests that the FOMC will likely keep its policy stance unchanged at the January meeting, as there were no signs of significant deterioration or improvement in economic conditions over the past month," said Nomura Global Economics in a note to clients.

AFP