special reports

DailyFX Instant Insight: Dollar Tumbles Following Less Hawkish Comments from Fed

Thursday, 29 June 2006 18:31:30 GMT  |  Kathy Lien and Boris Schlossberg, Currency Strategist

The Federal Reserve raised interest rates for the seventeenth consecutive time today by a quarter of a point to 5.25 percent.  The size of this move was widely expected, leaving the changes to the statement as the day's primary focus.  The key shift that traders are reacting off of is the fact that the Fed left in doubt the possibility of August hike ... by saying that any additional firming "will depend on the evolution of the outlook for both inflation and economic growth."  Furthermore, they are confirming to the market what traders have long suspected, which is that the negative impacts of the Fed's hikes to date are slowing down the economy.  Back in May, they said that economic growth was likely to moderate and now in June, they acknowledge that it has.  Traders are still left guessing however as core inflation remains elevated.  The Fed's future actions will most likely be dictated by upcoming economic data such as non-farm payrolls, productivity and inflation gauges. At this point, odds for an August rate hike have been lowered and we are much closer to seeing if we have not already seen the Fed's very last rate hike in this cycle.  As for the dollar, the Fed's tempered comments now shifts sentiment towards the Euro, whose own central bankers have been decidedly more hawkish.  The Japanese Yen will also benefit as carry trades unwind. 

Resources

• free demo account
• forex courses
• open an account
• forex stream
• free webinars