U.S. Dollar Moves Modestly Lower Following Fed Announcement

With traders reacting to the Federal Reserve's monetary policy announcement, the value of the U.S. dollar has moved modestly lower during trading on Wednesday.

The U.S. dollar index is currently trading at 93.88, down 0.2 percent after bouncing back and forth across the unchanged line earlier in the day.

The greenback is trading at 113.99 yen compared to the 113.96 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.1609 compared to yesterday's $1.1579.

The modest drop by the dollar comes after the Fed announced its widely expected decision to begin scaling back its asset purchases later this month.

The Fed said it plans to reduce its $120 billion in monthly bond purchases by $15 billion per month, citing the substantial further progress the economy has made toward its goals of maximum employment and price stability.

After reducing asset purchases by $15 a month this month and next, the Fed expects similar reductions in the pace of net asset purchases will likely be appropriate each month but said it is prepared to adjust the pace of purchases if warranted by changes in the economic outlook.

The accompanying statement continuing to describe elevated inflation as "transitory" as well as comments from Fed Chair Jerome Powell seemed to alleviate fears the central bank would be in a hurry to begin raising interest rates.

In his post-meeting press conference, Powell stressed that the decision to begin tapering asset purchases does not reflect a direct signal regarding interest rate policy.

"We continue to articulate a different and more stringent test for the economic conditions that would need to be met before raising the federal funds rate," Powell said.

Powell argued there is still ground to cover to reach maximum employment both in terms of employment and participation.

Earlier in the day, payroll processor ADP released a report showing private sector employment in the U.S. increased by more than expected in the month of October.

ADP said private sector employment jumped by 571,000 jobs in October after surging by a revised 523,000 jobs in September.

Economists had expected private sector employment to climb by 400,000 jobs compared to the addition of 568,000 jobs originally reported for the previous month.

On Friday, the Labor Department is scheduled to release its more closely watched monthly employment report, which includes both public and private sector jobs.

Economists currently expect employment to jump by 425,000 jobs in October after rising by 194,000 jobs in September, while the unemployment rate is expected to edge down to 4.7 percent from 4.8 percent.

A separate report released by the Institute for Supply Management showed growth in U.S. service sector activity accelerated to a new record high in the month of October.

The ISM said its services PMI climbed to 66.7 in October from 61.9 in September, with a reading above 50 indicating growth in the sector. Economists had expected the index to inch up to 62.0.

For comments and feedback contact: editorial@rttnews.com

Market Analysis

Follow RTT