SINGAPORE (Reuters) – The dollar was trading below a four-month high against a basket of currencies on Thursday, with focus shifted to economic data after the Federal Reserve barely changed market expectations for further interest rate hikes this year.
On Wednesday, The Fed left its overnight interest rate as usual, within a target corridor of 1.50 percent to 1.75 percent.
The rate-setting committee said inflation had "come close to its target" and "on a 12-month basis, the committee's symmetric 2-percent target will reach in the medium term."
Analysts said Using the word "symmetric" suggests that the Fed may put inflation above its 2% target, which would limit the need for more aggressive tightening of monetary policy in response to recent inflation rises.
"The Fed signals that it is following the gradual course and is not raising interest rates faster (at least for now)," said Alvin Liew, chief economist at UOB in Singapore, in one note.
Under the US Federal Reserve's policy, traders of short-term US interest rate futures held on Wednesday betting that the Fed will make at least two more interest rate hikes this year.
On Wednesday, the dollar index briefly slid to around 92,245 against a basket of six major currencies, following the Fed's monetary policy stance, but later rebounded to a four-month high of 92,834 – up 4 percent in mid-April ,
In Asian trading on Thursday, the dollar index stood at 92.508 .DXY after slipping from this four-month high.
After the Fed session clears the deal, focus shifts to US labor market data due on Friday for further signs of economic strength and inflationary pressures.
The Euro rose 0.3% to € 1.1985, having reached a nearly four-month low of 1.1938 on Wednesday.
A short-term focus for the single currency is eurozone inflation data, due later Thursday, said Mitul Kotecha, senior EM strategist for TD Securities in Singapore.
The euro could come under pressure if the data shows a slowdown in core inflation in the eurozone, Kotecha said, adding that the dollar could make further gains at least in the near future.
The dollar has been buoyed in recent weeks by the strong economic outlook in the US and rising yields, as some other industrialized countries, particularly Europe, have seen a slowdown.
The US dollar climbed 0.2 percent to 109.65 yen (JPY) after reaching a three-month high of 110.05 yen on Wednesday.
The dollar's rise against the yen has slowed somewhat following strong gains since April, said Tareck Horchani, Asia-Pacific Sales Manager at Saxo Markets in Singapore.
"The market is now likely to be quite long (dollar / yen)," Horchani said, adding that the dollar may have some downside risk against the yen should US stocks come under pressure on Thursday.
Asian stocks eased as hopes for real progress in Sino-US trade talks, which are due to start on Thursday, have eased.
Reporting by Masayuki Kitano; Arrangement by Eric Meijer and Sam Holmes