The dollar rose against a basket of other currencies on Wednesday as US Federal Reserve Chairman Jerome Powell said the central bank's current policy stance is appropriate, reducing expectations for a rate cut. The greenback rebounded from earlier losses tied to a disappointing report on US manufacturing activity.
"The dollar turned higher after Mr. Powell indicated that the forces weighing on inflation may prove temporary," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. "The chairman's remarks skewed the Fed's overall tone today as more hawkish than dovish." In March, signalled it would not raise rates in 2019. Downbeat domestic and overseas figures have now stoked speculation policy makers could reduce key US rates to avert a recession.
"We think our policy stance is appropriate at the moment; we don't see a strong case for moving it in either direction," Powell said in a press conference after the Fed's two-day policy meeting. In late US trading, an index that tracks the dollar against the euro, yen, sterling and three other currencies was up 0.21% at 97.679.
Interest rates futures implied traders now see a 55% chance of a Fed rate cut at year-end, down from 66% late on Tuesday, according to CME Group's FedWatch program. Earlier, the dollar slipped after the Institute for Supply Management said its barometer on the US factory sector deteriorated in April to a 2-1/2 year low. The surprise downturn was offset by a report from ADP that US companies added 275,000 workers last month, the most in nine months.
Some of the dollar's gains in April came against the euro, on growing concerns about a slowdown in the euro zone economy. However, relatively strong euro zone economic data on Tuesday prompted some hedge funds to cover short positions in the euro, lifting it above $1.12.
The euro extended gains before Powell's press conference. It hit a one-week high at $1.125 before falling 0.21% to $1.11925. The dollar ended little changed at 111.415 yen, rebounding from a low of 111 yen.
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