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U.S. Dollar Drops Steeply Against Major Currencies

Most major global currencies traded sharply higher against the U.S. dollar after the Federal Reserve’s policy statement indicated that interest rate hikes will be implemented at a slower pace than expected.

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Fed stays put

The dollar weakened against most currencies as the Fed stayed put on interest rates and expressed the probability of only two interest rate hikes this year instead of four, which was projected earlier.

The central bank maintained that the U.S. economy is exposed to risks that have arisen due to an uncertain global economy, however, added that the recent improvement in growth numbers as well strong job gains will help it to implement rate hikes through 2016.

Eyes on Bank of England

The euro gained 0.54% to 1.1284 against the U.S. Dollar while the British pound added up 0.22% to 1.4291 versus the greenback. The Japanese Yen also strengthened as the greenback slipped 0.76% to 111.69 during the late Asian hours.

The dollar’s weakness is in response to the FOMC, but the yen also witnessed some pressure due to risk-on sentiment, gaining ground later in the afternoon. Bart Wakabayashi, head of FX sales of State Street Global Markets in Hong Kong, said that the dollar clawed back on some gains this week as there was an impression among market participants that the Fed will go hawkish. However, its comments yesterday put it in line with other global economies.

Meanwhile, analysts at Rabobank have ruled out any rate hike in the U.S. within the next six weeks. But they projected another round of hikes to happen in June this year. Following the Fed’s comments, investors will be actively following the policy decision by the Bank of England, which is scheduled to come in later today. A majority of analysts do not expect a rate hike to be announced by the BOE until the first quarter of 2017.

The US Dollar Index fell 0.92% to 95.01 during early European trade.

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