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Yen and Swiss franc gain after Fed's gloomy picture
THE Japanese yen and the Swiss franc gained on Thursday as expectations that the global economy will recover swiftly from the novel coronavirus pandemic took a beating after a US central bank policy meeting.
The Federal Reserve signalled that it plans years of extraordinary support for the United States economy, which policymakers project will shrink by 6.5 per cent this year.
The Federal Open Market Committee (FOMC) also anticipated that the unemployment rate will be 9.3 per cent at the end of this year, and that interest rates are expected to remain near zero until the end of 2022.
The dire projections took the wind out of a broadening rally in stock markets over the previous two weeks, and prompted investors to dump the Australian dollar and other commodity-linked currencies.
Against a basket of its rivals, the US dollar weakened 0.1 per cent to 96.04 after edging 0.2 per cent higher in Asian trade as global stock markets weakened.
Versus the Swiss franc, the US dollar slipped to a three-month low and it languished near a one-month low versus the yen.
"Our assessment after the FOMC's statement is that the trend for a weaker dollar that has set in June is likely to continue as the Fed has shown no indication that it will stop this trend," said Thomas Flury, head of FX strategies at UBS Global Wealth Management.
The US dollar had gained previously from episodes of broader market selling, but the US currency was on the back foot on Thursday on concerns of a second wave of novel coronavirus infections.
New infections in the United States showed a slight increase after five weeks of declines, a Reuters analysis reported; only part of the rise was attributed to more testing.
Marshall Gittler, head of investment research at BDSwiss Group, said: "The risk of a second wave outweighed the Fed's 'zero forever' message and the FX market took a distinctly risk-off mood, with a typical reaction."
High-beta currencies heavily geared towards global growth, such as the Australian dollar and the Norwegian crown, led losers in the currency space, falling 1 per cent in early London trading.
The euro rose 0.1 per cent, leaving open the possibility of more downside for the greenback once the dust settles.
The single currency last bought US$1.1385. REUTERS