Dollar gets a boost as Fed keeps key rate on hold
NEW YORK (AFP) — The dollar received a boost Tuesday as the Federal Reserve kept its key interest rate on hold at 2.0 percent citing lackluster economic growth and inflationary pressures.
Some traders cautioned that the dollar could fall back in coming days on possible profit-taking, especially as eurozone rates are predicted to remain higher than US rates for the foreseeable future, offering a better potential return than funds invested in US markets.
The single European currency was swapping hands at 1.5454 dollars around 2100 GMT, down from 1.5580 late Monday.
The dollar gained against the Japanese currency, rising to 108.36 yen from 108.25 a day earlier.
"The US Federal Reserve left the fed funds rate unchanged at 2.0 percent as widely expected by the market," said Antonio Sousa, a chief strategist at Forex Capital Markets.
"Today's FOMC (Federal Open Market Committee) statement was clearly a disappointment for many market players and the recent strength in the US dollar may easily evaporate in a wave of profit-taking," Sousa said.
The dollar has weakened in the past year amid faltering US economic growth, but it has picked up strength of late as US growth, buoyed by a giant 168-billion-dollar economic stimulus, has shown signs of improvement.
Some traders expressed hope this could open the door to the Fed eventually hiking rates, but the central bank gave no indication it was moving to such a stance Tuesday saying it remained worried about inflationary pressures.
Rocketing oil prices have boosted energy prices, but crude prices have cooled in recent months to around 119 dollars a barrel from record highs over 147 dollars last month.
Analysts nonetheless are not predicting that the Fed will hike its federal funds rate any time soon and say this could temper the dollar's recent rise, especially as eurozone rates remain elevated.
The European Central Bank is expected to keep its main lending rate pegged at 4.25 percent on Thursday, partly in a bid to temper inflationary pressures.
"When riding a bike, one of the most difficult things to do is to balance while trying to stay still," said analyst Daragh Maher of Calyon.
"In a way, that is what the market is trying to do so far this week, waiting for the central bank announcements but trying to gauge how best to balance in the meantime.
"For now, standing still may be enough to ensure that the dollar advances. After all, most other economies appear to be sliding backwards."
The Bank of England also meets Thursday to deliberate its rates.
The pound was quoted at 1.9545 dollars, down from 1.9628 late Monday.
In late New York trade, the dollar stood at 1.0541 Swiss francs, up from 1.0476.
