FOREX-Dollar edges higher as Fed outlook lifts U.S. yields

Reuters

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    * Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

    By Eimi Yamamitsu
    TOKYO, Sept 17 (Reuters) - The dollar firmed against major
currencies on Thursday following the U.S. Federal Reserve's
upbeat assessment of the economic recovery and as its increased
tolerance for higher inflation pushed Treasury yields higher.
    At its policy meeting, the Fed pledged to keep rates near
zero until at least the end of 2023 when the labour market
reaches "maximum employment" and inflation is on track to
"moderately exceed" the 2% inflation target.  urn:newsml:reuters.com:*:nL1N2GD0O5 
    The Fed also expects economic growth to improve from the
coronavirus-induced drop they projected in June. 
    Against six major currencies, the dollar index rose about
0.32% to trade at 93.493  =USD  and changed hands at 1.1763
against the euro,  EUR=EBS  which briefly hit a one-month low.
    The greenback initially fell after the Fed’s announcement
and weaker-than-expected U.S. retail sales data, but swung into
positive territory after Chair Jerome Powell's comment on the
economic outlook.
    Broad dollar buying followed after the benchmark 10-year
U.S. Treasury yield rose above 0.7% overnight, a reaction
resembling that of the Fed's Jackson Hole symposium last month,
said Mitsuo Imaizumi, chief FX strategist at Daiwa Securities.
    "It's the same reaction the market had when Fed Chair Powell
introduced a new framework last month, and longer-term yields
went up after the announcement. Based on the higher interest
rates, I think people are feeling they won't be able to sell the
dollar," he said.
    Analysts said there is a risk of a slowdown in economic
activity unless more fiscal stimulus is provided.
    "Besides the presidential election, I think the focus will
be on the U.S. fiscal support, which Powell also said is
essential," said Shinichiro Kadota, senior strategist at
Barclays. "The Congress is still struggling with stimulus talks,
and markets are eyeing if that would be resolved."
    Among Asian currencies, the Australian dollar  AUD=D3 
briefly surged on strong jobs data but retraced its gains as the
 currency was swamped by a firmer dollar, last trading 0.53%
lower to $0.72665.  urn:newsml:reuters.com:*:nL4N2GE0KH
    The Bank of Japan kept its monetary policy steady on
Thursday and said the country's economy "remains in a severe
state but has started to pick up," suggesting no immediate
stimulus was needed to support activity. urn:newsml:reuters.com:*:nL4N2GE0M0
    The policy decision came after Yoshihide Suga, a long-time
aide of Shinzo Abe who pledged to continue "Abenomics" to
recover employment, was officially elected as Japan's new prime
minister on Wednesday.
    Market participants will focus on BOJ Governor Haruhiko
Kuroda's remarks about how the central bank would coordinate
monetary policy with the new Suga administration.  urn:newsml:reuters.com:*:nL4N2GC0AQ
    The safe-haven Japanese yen  JPY=EBS  changed hands at
105.08 against the greenback, a fraction below a 2-1/2-month
high of 104.81 marked overnight.
    Elsewhere, the Chinese yuan  CNH=D3  traded at 6.775 per
dollar in offshore trade.
    The focus for the British pound is now on Brexit tensions,
following the government's deal on Wednesday to avert a
rebellion in Prime Minister Boris Johnson's own party, giving
parliament a say over the use of post-Brexit powers.
 urn:newsml:reuters.com:*:nL8N2GD4RA 
    The pound was last at $1.2932  GBP=D3 , after dropping more
than 3.5% against the greenback and the euro last week. 
    Against the euro, it changed hands at 0.9098 pence per euro,
near a 5-1/2 month low hit earlier this week  EURGBP=D3 . 
    The Bank of England is likely to signal that it is getting
ready to pump more stimulus into Britain's coronavirus-hit
economy at its policy decision due later in the day.
 urn:newsml:reuters.com:*:nL8N2G73B8
    The kiwi  NZD=D3  traded 0.67% below at $0.6690, after data
showed New Zealand fell into its deepest slump on record as the
coronavirus outbreak paralysed business activity.  urn:newsml:reuters.com:*:nL4N2GD48G 

 (Reporting by Eimi Yamamitsu; Editing by Sam Holmes)
 ((eimi.yamamitsu@thomsonreuters.com;))

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