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Dollar soars as Fed outlook raises US yields

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TOKYO (Reuters) – The dollar strengthened against major currencies on Thursday following the U.S. Federal Reserve’s optimistic assessment of the economic recovery and as its heightened tolerance for higher inflation pushed yields on Treasury bills on the rise.

FILE PHOTO: US dollars are counted by a banker counting currency at a bank in Westminster, Colorado, November 3, 2009. REUTERS / Rick Wilking / File Photo

At its policy meeting, the Fed pledged to keep rates close to zero until at least the end of 2023, when the labor market reaches its employment peak and inflation is on the way. moderately exceed the inflation target of 2%.

The Fed also expects economic growth to improve from the coronavirus-induced decline it projected in June.

Against six major currencies, the dollar index rose about 0.32% to trade at 93.493 = USD and changed hands to 1.1763 against the euro, EUR = EBS which briefly hit a one-month low.

The greenback initially fell after the federal government announced and weaker-than-expected US retail sales data, but turned into positive territory after President Jerome Powells commented on the economic outlook.

Broad dollar purchases followed after the benchmark 10-year U.S. Treasury yield surpassed 0.7% overnight, a reaction resembling that of the Feds Jackson Hole symposium last month, Mitsuo Imaizumi said. , Chief Currency Strategist at Daiwa Securities.

It’s the same reaction the market had when Fed Chairman Powell introduced a new framework last month, and long-term yields rose after the announcement. Considering the higher interest rates, I think people think they won’t be able to sell the dollar, he said.

Analysts said there is a risk of slowing economic activity unless further fiscal stimulus is provided.

Besides the presidential election, I think the focus will be on US tax support, which Powell says is also essential, said Shinichiro Kadota, senior strategist at Barclays. Congress is still grappling with stimulus talks, and the markets are considering addressing this issue.

Among Asian currencies, the Australian dollar AUD = D3 briefly on strong employment data, but recovered its gains as the currency was submerged by a stronger dollar, the last trade lower 0.53% to $ 0.72665.

The Bank of Japan kept monetary policy stable on Thursday and said the country’s economy remained in critical condition but had started to recover, suggesting that no immediate stimulus was needed to support activity.

The policy move came after Yoshihide Suga, a longtime aide to Shinzo Abe who pledged to continue with Abenomics to get a job, was officially elected as Japan’s new prime minister on Wednesday.

Market participants will focus on remarks by BOJ Governor Haruhiko Kurodas on how the central bank would coordinate monetary policy with the new Suga administration.

The Japanese yen, a safe haven JPY = EBS changed hands at 105.08 against the greenback, a fraction below a 2-1 / 2 month high of 104.81 overnight.

Elsewhere, the Chinese yuan CNH = D3 traded at 6.775 per dollar in offshore trading.

The pound is now focused on Brexit-related tensions, following the government’s deal on Wednesday to avert a rebellion within Prime Minister Boris Johnson’s own party, giving Parliament a say in the use post-Brexit powers.

The pound was the last at $ 1.2932 GBP = D3, after falling more than 3.5% against the greenback and the euro last week.

Against the euro, it changed hands at 0.9098 pence to the euro, near a low of 5-1 / 2 months earlier this week EURGBP = D3.

The Bank of England is likely to signal that it is preparing to pump more stimulus into the coronavirus-hit UK economy during its policy decision expected later today.

The kiwi NZD = D3 traded 0.67% below at $ 0.6690, after data showed New Zealand slipped into its deepest recession, with the coronavirus outbreak crippling business activity.

Reporting by Eimi Yamamitsu; Editing by Sam Holmes

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