Published: Thu, May 03, 2018
Money | By Wilma Wheeler

Dollar dips as Fed seen more likely to tolerate inflation

Dollar dips as Fed seen more likely to tolerate inflation

Information released by the Fed in March showed that a bare majority of the 15 participants in the monetary policy committee expect no more than two further quarter-point rate hikes in 2018. The trade-weighted index fell to 73.12 from 73.25.

The kiwi dollar traded at 69.88 United States cents as at 8am in Wellington and earlier touched 69.81 cents, the lowest since late December, from 70.12 cents late yesterday.

The Fed's preferred Personal Consumption Expenditures price index hit the central bank's two-percent target in March for the first time in almost a year, while "core" PCE inflation, which excludes volatile food and energy prices, was 1.9 percent.

The euro gained 0.1 per cent to US$1.1968.

E-Mini futures for the S&P 500 crept 0.3 per cent higher, with overnight results from Kraft Heinz, Tesla and Spotify in focus.

The central bank on Wednesday said it still expected growth to continue at a moderate pace and labour market conditions to remain "strong".

In economic data, US private sector employers are said to have added 204,000 workers to payrolls last month, according to the ADP Research Institute.

"The market will have to get used to the fact that in order to prevent an economic overheating interest rates in the USA will continue to rise", they said, predicting that rate differentials between countries would have an increased bearing on currencies and could cement euro/dollar at around $1.20.

"There's not that much to read into this", said Crit Thomas, global market strategist at Touchstone Investments.

Analysts interpreted its comments on inflation as a signal the Fed may allow prices rises beyond its target, a stance that would limit the need for the central bank to embark on a more aggressive path of monetary tightening in response to recent rises in inflation.

Hong Kong's Hang Seng index ended 1.3 per cent lower, but Chinese shares bucked the trend. It omitted earlier language that the economy has strengthened in recent months.

USA investors fretted about the acknowledgement of rising inflation. Experts say the two-percent target is symmetric, meaning it would be equally problematic if inflation lingers too far above or below that level.

The eight-member FOMC had raised the funds rate in March.

The New Zealand dollar fell to its lowest level in more than four months as further signs of a robust USA jobs market stoked expectations that the Federal Reserve will raise interest rates again next month.

Bond prices moved to the upside in late-day trading after spending most of the session lingering near the unchanged line.

Spot gold was up 0.4 per cent at $1,310.48 an ounce.

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