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The US Dollar exchange rate complex fell back after the US Federal Reserve opted to temper expectations for an imminent interest rate rise with the release of their July 27th statement.
The US Federal Reserve's Open Market Committee statement released on July 27th proved to be no game-changer for those watching the US Dollar based on US interest rate expectations.
While the Fed said that it continues to closely monitor global and financial developments (same as in June), it did upgrade its assessments of the economy and the labour market.
It now suggests that risks have diminished which is a new and significant addition.
"The takeaway is that the Fed is clearly eying higher rates this year. The dollar reacted positively initially, but the move was quickly corrected and the dollar weakened as the FOMC refrained from sending any clear signals of a September hike," says Erica Blomgren at SEB.
Treasury yields and the Dollar dropped while the S&P 500 erased earlier losses ending the day -0.1%.
Some analysts have expressed surprise to the market’s reaction in driving both US rates and the Dollar lower after the FOMC statement.
The Fed did generally acknowledge the recent pick-up in US activity and most commentators have interpreted the phrase that ‘near term risks to the economic outlook have diminished’ as meaning that a December rate hike could be possible after all.
"Yet market pricing of a December rate hike (which was already under 50%) actually fell. We still like the USD on a near term basis (particularly against Europe), so would expect overnight losses to be recouped – perhaps when US 2Q16 GDP is released tomorrow," says Chris Turner at ING in London.
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