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Dollar Rises To Over 2-year High After Powell Comments

The U.S. dollar rose to a two-year high in late afternoon trades on Wednesday after the Federal Reserve cut interest rate as expected by 25 basis points and its chief Jerome Powell said that the rate cut should not be seen as "the beginning of a lengthy cutting cycle."

In his post meeting press conference, Powell described the rate cut "essentially as a mid-cycle adjustment to policy," and not the beginning of a lengthy cutting cycle. "That is not what we're seeing now, that's not our perspective now," he added.

The central bank's FOMC's vote to cut rate was not unanimous, with Kansas City Fed President Esther George and Boston Fed President Eric Rosengren preferring to keep rates unchanged.

The Fed decided to cut rates even though its assessment of the economy was largely unchanged, noting that data received since the last meeting indicates the labor market remains strong and economic activity has been rising at a moderate rate.

The central bank's statement did note that market-based measures of inflation compensation have declined after previously saying the measures remain low.

While the Fed said a sustained expansion of economic activity, strong labor market conditions, and inflation near its 2% objective are the most likely outcomes, the central bank said uncertainties about this outlook remain.

The Fed said it will continue to monitor the implications of incoming information for the economic outlook and reiterated that it will act "as appropriate to sustain the expansion."

The dollar index rose to a high of 98.68, beginning its climb immediately after the Fed announced its rate decision and Powell made his comments. Till then, the dollar was a bit sluggish, although it stayed above the flat line much of the time.

Against the euro, the dollar strengthened to 1062, gaining more than 0.8%.

Against Pound Sterling, the greenback recovered from a low of 1.2249 to 1.2134 before retreating slightly to 1.2153, near its previous close.

The Japanese currency Yen was down 0.16% with a dollar fetching 108.77 yen. Immediately after the Fed's rate announcement, the dollar rose to 109.00 yen but gave up some gains subsequently.

Against the loonie, the dollar was up 0.33% at 1.3195. Earlier in the daym the loonie had gained against the greenback after data from Statistics Canada showed that Canada's gross domestic product rose for a third consecutive month in May. GDP rose 0.2% month-on-month in May following a 0.3% rise in April. Economists had expected a 0.1% rise.

Against the Aussie, the dollar gained nearly 0.5%, with the the AUD-USD pair hovering at 0.6840, while against Swiss franc, it was up 0.35%, at 0.9940.

Data released by payroll processor ADP on Wednesday showed private sector employment in the U.S. climbed by 156,000 jobs in July after rising by an upwardly revised 112,000 jobs in June.

Economists had expected employment to increase by 150,000 jobs compared to the addition of 102,000 jobs originally reported for the previous month.

Meanwhile, MNI Indicators released a report that showed a continued contraction in Chicago-area business activity in the month of July.

The report said the Chicago business barometer tumbled to 44.4 in July from 49.7 in June, with a reading below 50 indicating a contraction in regional business activity. Economists had expected the barometer to edge back above 50 to 50.6.

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