Dollar Rises Even as Fed Talks About Patience

The US dollar rallied against the majority of its most-traded peers today after the Federal Reserve released statement of its first monetary policy meeting this year. The biggest loser was the Canadian dollar, while the Japanese yen was able to hold ground against the greenback and demonstrated an upward bias.

The US currency managed to rally even as the Fed reiterated that it “can be patient in beginning to normalize the stance of monetary policy”. Overall, the statement can be considered rather neutral, saying:

The Committee continues to see the risks to the outlook for economic activity and the labor market as nearly balanced. Inflation is anticipated to decline further in the near term, but the Committee expects inflation to rise gradually toward 2 percent over the medium term as the labor market improves further and the transitory effects of lower energy prices and other factors dissipate.

It looks like policy makers are not in a hurry to start raising interest rates as the following words suggest:

The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Yet prospects for monetary tightening from the Fed, even not a close one, were enough to propel the dollar higher as major other central banks prefer to either keep rates stable or even to cut them.

EUR/USD dropped from 1.1378 to 1.1292 as of 20:22 GMT today even though the currency pair attempted to rally immediately after the Fed announcement. USD/CAD rallied from 1.2395 to 1.2513, reaching the highest level since April 2009. At the same time, USD/JPY declined from 117.84 to 117.57, retreating from the daily high of 118.25.

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