The U.S. Dollar finished lower against a basket of major currencies on Wednesday. The dollar was under pressure early in the session, but rallied after the Fed released its interest rate decision and monetary policy statement. However, the index still closed lower for the session because there weren’t enough buyers to support the gains.
March U.S. Dollar Index futures settled at 88.954, down 0.045 or -0.05%.
A modest gain in the Euro may have had an impact on the dollar index since the single currency is heavily weighted in the index. The EUR/USD received support early in the session after a report showed underlying Euro Zone inflation picked up pace.
U.S. Federal Reserve
The U.S. Federal Reserve ended its two-day meeting by announcing it would not raise its benchmark interest rate. However, it indicated that it expects inflation pressures to heat up as the year moves on.
The decision by the Federal Open Market Committee to leave interest rates at 1.25 to 1.50 percent was widely expected. This decision had almost no impact on the markets. However, investors were looking at the statement for clues on how the central bank might proceed for the rest of the year. This was going to be the news that moved the markets.
According to projections released in December, FOMC officials expect three rate hikes this year so long as there is no significant disruption to market conditions. Recent price action in the Treasury markets, however, suggests that investors may believe the Fed is considering a fourth rate hike.
Today’s Fed statement contains a few tweaks which could influence the market’s view on the timing and the number of future rate hikes.
U.S. Economic Data
The ADP Non-Farm Employment Change report showed the private sector added 234K jobs in December. This was much higher than the 186K forecast. The previous month was lowered to 242K.
Chicago PMI came in at 65.7, beating the 64.2 forecast. Pending Home Sales came in as expected, up 0.5%.
Gold
Gold futures were under pressure on Wednesday after the Fed left rates unchanged, but hinted at rate hikes later this year. At Fed Chair Janet Yellen’s last policy meeting as head of the central bank, the Fed left interest rates unchanged. But its message on inflation signaled it was on track to raise borrowing costs in March under incoming chief Jerome Powell.
Crude Oil
U.S. West Texas Intermediate and international-benchmark Brent crude oil closed higher on Wednesday despite a bigger than expected inventories build. Traders said that OPEC’s strong compliance with its plan to cut output offset news that U.S. production topped 10 million barrels per day for the first time in nearly half a century.