Dollar steadies as boost from Fed rate hike fades

TOKYO (Reuters) – The dollar steadied against its peers early on Thursday as the small boost it received from a U.S. Federal Reserve interest rate hike faded, with a decline in U.S. Treasury yields reducing support for the greenback.

The dollar index against a basket of six major currencies <.DXY> stood little changed at 94.261 after nudging up 0.15 percent overnight.

As expected the Fed raised interest rates for the third time this year on Wednesday. The statement said the Fed still foresees another rate hike in December, three more next year, and one increase in 2020.

It also dropped a reference in its statement to the word “accommodative”, although Fed Chairman Jerome Powell later said policy was still accommodative. The Fed has gradually raised rates since late 2015 from a near-zero level.

Long-term U.S. Treasury yields <US10YT=RR> declined following the Fed’s tightening, pulling back from four-month highs of 3.11 percent scaled earlier in week, with some investors thought to have wagered the Fed would hint at faster monetary tightening. [US/]

The dollar sagged against the yen in the wake of declining Treasury yields. The greenback was little changed at 112.76 yen <JPY=>, having slipped from a two-month peak of 113.145 brushed on Wednesday.

“The Fed meeting did not provide strong direction for currencies. This is because policymakers’ economic views and their outlook on rate hikes through 2020 were mostly as expected,” said Junichi Ishikawa, senior FX strategist at IG Securities.

“Meanwhile, the dollar has gone on the defensive against the yen due to declining Treasury yields and weaker equities.”

Wall Street shares reversed earlier gains and ended slightly lower on Wednesday. [.N]

The euro was up 0.05 percent at $1.1749 <EUR=> after declining 0.2 percent the previous day. The pound was little changed at $1.3172 <GBP=D4> following a 0.1 percent dip overnight.

Emerging market currencies such as the Mexican peso <MXN=D2> and the South African rand <ZAR=D4> held gains after rising overnight, relieved that the Fed’s projected path of rate increases were in line with expectations.

MSCI’s index for emerging market currencies <.MIEM00000CUS> edged up 0.1 percent after gaining 0.2 percent on Wednesday.

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