US dollar edges higher after sharp losses

[NEW YORK] The US dollar reversed two days of losses to edge higher Friday, still feeling the impact of the Federal Reserve's pullback on its rate hike expectations for this year.

The US dollar rose to US$1.1270 per euro, but was still far from the US$1.1075 level traded on Wednesday just before the Fed halved its expectations for rate rises this year to just two, citing the troubled global economy.

The US dollar rose barely against the yen to 111.55 yen, while the British pound was steady at US$1.4476.

Some of the turnaround was linked to comments from European Central Bank chief economist Peter Praet that the ECB could further cut rates if the economic outlook worsens.

"We have not reached the physical lower bound" on rates, Mr Praet told Italian daily La Repubblica.

"If new negative shocks should worsen the outlook, or if financing conditions should not adjust in the direction and to the extent that is necessary to boost the economy and inflation, a rate reduction remains in our armory," he said.

Analysts at Commonwealth Foreign Exchange said they expect the greenback to rebound more firmly in the future as central bank policies diverge.

"While the Fed's statement is likely to keep the dollar pressured over the near term, its medium and longer-term outlook remains brighter than current price action suggests," they said in a market report.

"The fact that the Fed is still likely to raise rates at least twice this year contrasts expectation for other major central banks to either stand pat or ease conditions further - a positive factor for the dollar."

AFP